With the oil market firmly back in contango, the demand for tankers to be used for storage has soared. With oil prices down more than 50% in the last six months, the likes of Vitol, Trafigura and Koch Supply & Trading are all looking at moving back into this profitable sector.
The last time this happened at this scale was back in 2009, when the slowdown in global demand during the financial crisis created a massive contango in the crude markets.
Just a month ago market conditions were not as favourable for storage at sea. But since the New Year the contango has widened and rates for a 12-month ship charter have almost doubled.
Even though shipowners are in no rush to take on less lucrative floating storage business, market observers say, for traders a contango ‘carry’ of just $8 (€7) a barrel for the next year for tankers containing 2 million barrels of oil will mean the contents of the vessel will generate $16 million over this period.
However, compared with 2009, fewer players are able to take advantage of the contango structure. The absence of cheap financing has been a deterrent, while US regulators have raised the level of scrutiny into banks’ physical commodities businesses. This means about 20 million barrels are in floating storage now, compared with the 100 million stored at sea last time around.
This level of floating storage is also having an impact on the demand for onshore storage. Some analysts are saying that up to 1 million barrels a day surplus can be maintained for a year before any significant additional storage infrastructure investments are required.
The IEA, however, predicts that global oil inventories may reach storage capacity limits in the next six months, particularly in Europe. Additionally the contango may well spill over into refined products, such as petrol, diesel and naptha, creating an even bigger demand for storage.