Wanna bet that gas will be as high as last summer?

5th June 2009 – Oil On Trouble Waters

Over the past few months crude floating had increased to such an extent that in May, some 10% of the VLCC fleet (around 50 vessels) had been taken out of the tanker market for this purpose. Despite that we now have a situation where freight rates, across most tanker sectors, have fallen close to or even below break even levels with the oil prices and bunkers starting to gain momentum. One would think that the recent rise in the oil price and the shrinking contango would release many VLCCs back into the tanker market and further depress rates. But, with crude inventories at around all time highs across various global strategic locations, it is likely that a significant amount of floating storage will remain, until oil demand increases. Owners will therefore retain a significant platform from which to push for higher rates to recompense them for their higher costs.

Whilst the crude floating storage has attracted the most attention, the floating storage of products has steadily crept up on the blind side. At the end of May we estimated that in excess of 31 million barrels of products, mainly Jet and Gasoil, was being held in four regions around the globe in floating storage. This totalled 50 tankers, including 3 VLCCs, 4 Suezmax and perhaps more significantly 38. Freight rates in the clean market have been under similar downwards pressure to those of the dirty tankers and any lifeline to improve the position for owners is most welcome. We estimate that between 15-20% of the LR2 fleet is tied into these storage projects, with 27 of these tankers storing in NW Europe. – Date published June 5 2009 UK shipping broker.
And : –
The amount of crude temporarily stored on tankers has been increasing steadily since December last year. Although there have been reports of some vessels offloading their cargoes, these barrels were typically transferred into tankers that have been willing to store at a lower rate. According to our calculations, currently at least 55 tankers, 49 of which are VLCCs, are storing 102 million barrels of crude oil. In addition, a further 33 vessels, mainly LR2 tankers, are storing 19 million barrels of middle distillates.

Crude oil is predominantly stored in the Atlantic basin. Around 42% of the total is stored in the US Gulf, a further 32% in the North Sea and the Mediterranean and finally 16% off West Africa. The West African crude market has benefited the most from tighter tonnage availability caused by the storage requirements, with VLCCs generating higher returns compared to their counterparts in the Middle East Gulf. Dated May 9 2009 same source as above.