Iran Daily reports that the Iranians are increasing oil storage in super-tankers once again - Iran Adds 3 Supertankers To Storage Fleet.

Iran, OPEC's second-biggest oil producer, added three supertankers to its fleet of vessels storing crude, matching a similar program in 2008 that helped freight rates to triple, ship tracking data show.

At least 15 such vessels are idling in the Persian Gulf, Gulf of Oman and Gulf of Suez, according to data from the ships collected by AISLive Ltd. The tankers can store a combined 30 million barrels of oil, more than a week of national output, Bloomberg reported.

Two years ago, Iran used as many as 15 tankers for storage, constricting vessel supply and helping to more than triple freight rates in less than three months.

Iran is likely storing oil because of weakening demand as refineries across Asia, accounting for almost two-thirds of global demand for supertankers, carry out maintenance. National Iranian Tanker Co., which operates the supertankers, also has a laden suezmax tanker idling off Iran, ship-tracking data show. A suezmax can hold about 1 million barrels of oil.

"They don't want to shut down their production," said Ole-Rikard Hammer, an analyst at Pareto Securities ASA in Oslo who's tracked tanker markets for more than two decades. "The refining clients are buying less because of maintenance and the Iranians seem to prefer to keep oil in floating storage."

The discount on Iran Heavy crude compared with Oman and Dubai petroleum is at its widest in more than a year, according to data compiled by Bloomberg. The discounts on Iran's Forozan, Soroush and Norouz crudes have also widened.

National Iranian Tanker has a fleet of 28 supertankers, according to Lloyd's Register-Fairplay data on Bloomberg. The remaining 13 carriers are all either moving or have been at their present locations for less than two weeks, according to the tracking data.

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.

Storing Crude

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.

The Houston Chronicle has an article on the "major players stockpiling oil in tankers" story - Oil players stockpile cheap crude on tankers.

Oil demand has plummeted along with home prices and stock market indexes, but discerning where energy demand could go in 2009 isn’t easy.

That’s why, as oil markets attempt to calibrate in the face of this recession, some traders, refiners, big oil companies and other interests have been buying cheap oil in recent weeks and squirreling it away in storage tanks and ships with plans to unload it months from now when prices are higher.

It’s difficult to quantify exactly how much oil is being stored in ships, but Frontline LTD, which runs one of the largest crude supertanker fleets, estimates 80 million barrels of oil are drifting slowly on the high seas—roughly equal to a day’s oil consumption for the entire world.

Storage space for oil has become so tight in the U.S. it’s tough to find room onshore.

According to the latest report from the U.S. Energy Information Administration, 339 million barrels of crude are in commercial stocks — a 16 percent increase over this time last year and well above the U.S. average.

As oil demand drops, crude has filled tank farms in storage hubs like Cushing, Okla., and packed an underground network of pipelines.

The demand slump and supply glut are forcing some domestic producers to pull back on exploration for new oil and production of existing reserves.

U.S. oil production is down 2 percent year-over-year, and imports of foreign crude have dipped, according to the Energy Information Agency, a unit of the Department of Energy.

In the last four months, 807 drilling rigs have been taken out of commission — a third of the total that were operating during drilling’s peak at the end of September, says Jeff Dietert, an analyst with Simmons & Company International.

In addition to dropping 70 percent since its record high closing price of $145.29 a barrel on July 3, the oil market has gone into contango, a condition in which the current price of crude is less than contracts for future delivery of oil months from now. That’s motivating players in the energy market to stockpile.

Here’s why: Oil purchased Friday for $41.68 a barrel could immediately be sold through a forward contract for September delivery at a price of $52.85 a barrel. That’s a gross profit of more than $11 per barrel before storage costs.

Those costs vary, but tanker rates have been dropping and Dietert says chartering a vessel that holds up to 2 million barrels of oil is running about $60,000 a day. That means storing oil at sea for six months would cost roughly $1 per barrel per month, leaving a profit of more than $5 per barrel.

There were a few stories last year during the oil price spike about oil tankers being used for storage (see Tanker Tales and Falling Oil Price, Record Oil Production, Empty Tankers). Bloomberg reports on a renewed outbreak of floating storage - Oil Traders Seek Another 10 Tankers, Frontline Says ( via Cryptogon, who senses a coming price jump).

Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year. About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

The traders would buy crude now and sell it for delivery later, profiting from a futures market situation called contango where prices are higher as the year progresses. The vessels could handle as much as 20 million barrels, or about what is produced by OPEC member Algeria in 15 days. They would add to as much as 50 million barrels already hoarded at sea, for a combined amount equal to almost five days of European Union demand.

“I’ve never before seen storage demand on this scale,” said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.

Readers with good memories might remember this post on large amounts of Iranian oil stored in tankers in the Persian Gulf.

While the falling oil price in recent weeks has taken attention away from peak oil once again (exacerbated by a new production record [pdf]), I thought this snippet from Bloomberg was interesting - Iran Sells All Oil Held in Floating Storage Tanks, Shana Says.

Iran sold all the crude it held in floating storage tanks, Shana reported, citing Ali Asghar Arshi, manager for international affairs at the National Iranian Oil Co.

Arshi said oil stockpiles built up as refineries underwent seasonal maintenance work and were sold at a higher price as crude rose in recent months, the state-run news agency reported.

Bloomberg had an interesting article a little while ago on the largish fleet of oil tankers hanging around in the Persian Gulf that Iran is using to store crude in - Iran Ships Can Hold Months of Saudi Oil Pledge.

Iranian supertankers now in the Persian Gulf could store the equivalent of five months worth of the additional crude oil Saudi Arabia pledged to pump to curb prices, according to ship-tracking data compiled by Bloomberg.

Saudi Arabia said it would increase production by 200,000 barrels a day in July, after a summit of leading oil producers and consumers in Jeddah yesterday. Saudi Arabia and Iran are the OPEC's two largest oil producers.

Iran has 13 to 15 supertankers idling in the Gulf with capacity to hold as much as 30 million barrels, the ship-tracking data shows. Iran has not said how much oil is in the tankers. Hojatollah Ghanimifard, executive director of international affairs at National Iranian Oil Co., said June 2 that some vessels were storing crude while refineries carried out annual repairs.

The chart of the day lists 16 Iranian ships, of which 13 are idling either at the country's Kharg Island oil loading facility or the nearby Soroosh Terminal, according to AISLive data on Bloomberg. The signals of two other vessels at the facilities were tracked last week. Each supertanker has the capacity to store about 2 million barrels of crude.

Ghanimifard said that the ``number of vessels will decrease by the end of June,'' as refineries that can process Iran's sulfur-rich crude reopen after maintenance.

Paul Kedrosky notes that if there is an oversupply of oil, then for evil speculators to push prices up they'd need to hoard it - however he doesn't think that is what is actually happening - Oil? No Oil Here. Oh ... You Mean _That_ Oil!.

While many people are focused on the silly idea that speculators (the von Trapps!) are the primary cause of current oil market advances, what if a more useful thing to think about was hoarding? What hoarding, specifically? Well, there are those supertankers hanging around in the Persian Gulf.

According to Bloomberg, there is currently tanker capacity of at least 30-million barrels parked off the Iranian coast. That is about five months worth of the proposed Saudi boost to crude supplies.

Bloomberg has an update on the story today, noting the Iranian holding fleet is shrinking - Frontline Income at Risk as Record Oil Hits Shipping.

The tanker fleet's capacity will increase 18 percent to 432 million tons of oil by the end of 2010, according to London-based shipbroker Simpson, Spence & Young Ltd., whose data is used by the IEA for shipping analysis. Oil demand will expand 2.7 percent during that time to 89.2 million barrels a day, the Paris-based IEA said July 1.

Frontline expects less growth in capacity. Jens Martin Jensen, interim chief executive officer, told investors May 22 that 120 so-called very large crude carriers will join the fleet, while about 100 single-hull ships are phased out because they don't meet new standards of environmental protection. ``We will actually see a rather undramatic fleet growth,'' he said. ...

Profits from supertankers, which are bigger than the Chrysler Building and haul about a fifth of the world's oil, will drop 15 percent to $100,000 a day in the second half, based on the median estimate from the 13 analysts and brokers. In 2010 rates will plunge to about $67,000 a day, according to data from Imarex ASA in Oslo, a freight-derivatives brokerage.

The number of ships competing for cargoes may also swell in the next two months because Iran, OPEC's second-largest oil producer, is freeing up supertankers that it's using to store crude in the Persian Gulf, Chiu said.

The National Iranian Tanker Co. cut the number of idling ships to 11 from 15 in the last two weeks, Bloomberg data show.

Use of vessels for storage helped tanker rates more than triple since April, delivering rental income of almost $196,000 a day for Frontline, Overseas Shipholding Group Inc. and Euronav NV, according to prices from London's Baltic Exchange and a formula from Oslo-based shipbroker RS Platou A/S.

Available Supertankers

There are 71 supertankers available for hire in the next 30 days, up from 63 a month ago, estimates broker Barry Rogliano Salles in Paris.

To be sure, the Organization of Petroleum Exporting Countries is pumping more than ever before, bolstering demand for ships, Bloomberg estimates show. ``All the extra oil that comes out of the ground will go to Asia,'' said Andreas Vergottis, research director at Tufton Oceanic Ltd., the world's largest shipping hedge fund.