Oil traders once again believe it is worth heading out to sea.
The market structure for Brent crude, the benchmark for more than half the world’s oil, now makes it viable to store supplies in a ship to potentially lock in profits on a sale six months later, according to a Bloomberg survey of six traders and analysts.
In August, cargoes for later delivery have averaged $2.78 a barrel higher than prompt shipments, more than covering the cost to hire a tanker for storage for half a year.
This discount of near-term supplies versus cargoes for later, known as contango, was as little as 70 cents in April, when shipping costs were higher as well, making it unlikely then that traders could potentially profit from floating storage. But with front-month futures sliding since early June and tumbling into a bear market this month amid swelling onshore stockpiles, the market structure has changed while freight has also become cheaper.
“Demand from refineries looks set to pick up toward the end of the year as more units return from peak maintenance season,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “It’s not a bad time for traders to start thinking about floating certain grades of oil as the current Brent structure and freight are helping their cause.”
A six-month time charter on a Very Large Crude Carrier that can carry 2 million barrels of oil would cost $25,000 to $28,000 a day, according to two shipbrokers and a tanker charterer. That’s equivalent to $2.25 to $2.52 a barrel. October Brent futures traded at $43.76 a barrel on Friday, lower than the April 2017 contact at $46.23 on the London-based ICE Futures Europe exchange.
A drop in freight rates as new ships enter the market and shrinking availability of traditional storage options “may be prompting creative approaches to holding on to oil,” industry consultant JBC Energy GmbH said in a report last month.
Additionally, the deepening contango has made floating storage relatively attractive for some companies, it said.
