|February 24th, 2010, 11:10 AM||#1|
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Tankers - Storing Your Oil At Sea
Floating storage critical for tankers - broker
LONDON, Feb 23 (Reuters) - The amount of oil held on vessels at sea will remain a critical factor for the tanker market this year amid soft energy demand and rising ship supply, leading ship broker E.A. Gibson said on Tuesday.
Last year a price play taking advantage of prompt oil that was cheaper than further forward prices had encouraged traders to store cargoes at sea with a view to selling them later at higher prices, helping to soak up available vessels.
But the contango on the oil futures market has narrowed in recent weeks, making it less attractive to hold stocks in floating storage.
Gibson's head of research Steve Christy said floating storage had acted as a "huge cushion" for the tanker market.
"What happens this year is going to be very much dependent on where this goes," Christy told a shipping conference, referring to the impact of sea storage on tankers.
Figures presented by Gibson showed 112 vessels were storing crude oil and clean products globally by Feb. 9, down from a high of 149 ships at the end of November.
Christy said two thirds of the volume was concentrated in clean oil products, with a third of stocks held in crude oil.
Gibson estimated that average earnings for VLCCs on the benchmark Middle East-Japan route could drop to the "low $20,000" a day level this year without storage or tanker cancellations and could reach around $35,000 a day with sustained storage and ship cancellations. Earnings averaged around $29,000 a day last year.
Earnings on the route were over $34,000 a day this week, Baltic Exchange data showed on Monday.
Gibson estimated the number of scheduled vessel deliveries this year was expected to rise to 455 ships from 404 last year, 339 in 2008 and 290 in 2007 when the tanker market saw a boom.
Energy consultants Poten & Partners said in a report on Feb. 12 around 57 million barrels of clean products were being stored at sea, down from around 80 million barrels in December.
"Although the spread between spot and future prices for distillate has narrowed significantly, opportunities will likely persist for traders and ship owners interested in storage plays," it said.
Christy told Reuters Gibson believed Iran was storing crude oil on four VLCCs. A VLCC can store up to two million barrels of crude oil.
He said it was common for Iran around this time of year to store crude oil in temporary floating storage.
"The Iranians are storing crude in the Middle East on VLCCs -- not for contango plays but for infrastructural or sales or marketing issues," he told the conference in London.