The current oil market contango may not be attractive enough to support the use of large amounts of floating storage, a trader has warned.
Alex Beard, Glencore’s head oil trader has said that the current market conditions are not appealing enough for large amounts of floating storage as traders need to cover the storage, the length of time the vessel is required for as well as other associated costs such as insurance.
Earlier this year, demand for tankers soared as oil prices plummeted more than 50% in the last six months. Vitol, Trafigura and Koch Supply and Trading were, in January, considering using floating storage to reap the benefits of the shifting market dynamics following five years of a backwardation market.
In January, as the contango widened further, rates for a 12-month ship charter almost doubled.
According to analysts and shipbrokers, only two of the almost 40 vessels chartered to hold crude for up to 12 months are doing so. This is partly due to the fact that costs for this form of storage have increased.
Some traders are either selling crude or leasing out the tankers as the oil price rebounded in recent weeks to around $60 per barrel for Brent crude as this story was published.
However, it was only a month ago that the International Energy Agency (IEA) said in an oil market report published in February that floating storage is on the rise as oil stocks grew in January.
Using land based storage terminals remain favourable options for traders.
As previously reported – Energy Information Administration data shows that storage in the US is at 60% capacity with crude oil inventories at their highest level since 1982 having risen consecutively for the past nine weeks. Storage in Europe is at 90% capacity.