Posted by Big Gav in oil tankers
Mike Shedlock has a post on the oil tanker storage situation, with futures prices indicating that the days of storing oil at sea while waiting for future prices rises seem to be coming to an end - 26 Mile Long Glut Of Idle Oil Tankers.
Bloomberg is reporting Tanker Glut Signals 25% Drop on 26-Mile Line of Ships.A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.
The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers.
That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.
Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.
“The tanker market has been defying gravity,” said Martin Stopford, a London-based director at Clarkson Plc, the world’s largest shipbroker. Stopford has covered shipping since 1971.
More than half of the ships are in European waters, with the rest spread out across Asia, the U.S. and West Africa. Lined up end to end, they would stretch for about 26 miles.
Traders are storing enough crude at sea to supply the 27- nation European Union for more than three days. Royal Dutch Shell Plc, Europe’s biggest oil company; London-based BP Plc; JPMorgan Chase & Co.; and Morgan Stanley were among those that sought vessels for storage.
The storage trade is profitable so long as the spread between energy contracts exceeds ship rental, insurance and financing costs. A year ago, the spread between the first and sixth Brent crude-oil contracts traded on the London-based ICE Futures Europe exchange was 23 percent. Now, it’s 4 percent.
Speculation is one of the things propping up energy prices. Belief in a sustainable recovery is another, and rampant money supply growth in China is a third.
Regardless, with contango spreads tightening, demand for 26 miles of oil tankers will collapse.
The FT (which has the dubious privilege of being the only publication to ever ask me not to quote their material) also has a look at the immediate future for oil prices - The coming oil glut that will force prices to drop sharply.