VLCC's are Very Large Crude Carriers which can move 1.5 to, at the top end ULCC, 3 million barrels.
From IHS Maritime 360, Jan. 7:
Contango, finance cost, rates key in VLCC storage use
The extent of VLCC usage as storage vessels will depend on contango in oil price, VLCC spot rates, and finance costs, while rising speeds could erode any beneficial impact on freight rates of storage use, shipping analysts say.A couple days ago the six-month Brent contango got to over $6.50, more than enough room to make the math work.
Looking back, in mid-late 2009 and early 2010, the last time the oil price experienced such a precipitous decline, floating storage had a material positive impact on the tanker markets, said Jonathan Chappell, shipping analyst at Evercore ISI in New York.
"The average VLCC rate in the first six months of 2010, directly following the peak of the floating storage, was roughly $54,000/day, which was 40% higher year over year and at least twice the 1H totals of the following four years, despite very poor supply/demand fundamentals during that period," they told IHS Maritime. "In the much tighter tanker market of early 2015, we believe a re-acceleration of floating storage could send rates back to the recent highs of late 2014."...MORE
...At the moment, there is a $3/bbl contango in the oil market when comparing the spread between spot and the three months' future. "We calculate that at the current $60,000/day VLCC rates, it's not profitable to store crude on a VLCC unless you finance at the cost of Libor," said DNB shipping analysts Oyvind Berle, Nicolay Dyvik, and Petter Haugen.
The profit on storing crude on a VLCC is $1,596/day or $0.15M for a 90-day storage if you finance at Libor, while at the financing cost of Libor + 1%, the loss would be $1,169/day and at Libor +2%, the loss would be equivalent to $3,933/day....
Currently: Feb. $50.410--May $54.000--Aug. $56.950
From FT Alphaville:
The return of floating storage – a.k.a the sharks are back
Good news for those looking out for crude bottoms!
JBC Energy reports on Friday that the economics that make storing surplus oil in floating tankers profitable are finally in play. Contango, in other words, has returned sufficiently enough to the market to incentivize those intermediaries who have the physical means to store oil, to purchase it for storage purposes and delayed sales, thus helping to balance the surplus in the market.
As the analysts report (our emphasis):We believe there is more downside to U.S. prices as some 350-400 U.S. wells that have already been drilled and fracked await completion.
Floating storage appears to have kicked off this week with reports from Reuters and Bloomberg showing that at least five tankers have been booked for 1-year time charter arrangements by major oil traders. As we noted earlier this week, the widening Brent contango is making long-term storage plays viable.Though, offsetting that, the oversupply in the Atlantic Basin persists:
Besides market structure, the looming oversupply in the Atlantic Basin can also be seen in the weakness of the West African crude market. The premium over Dated Brent of key grades Qua Iboe and Bonny Light have slipped to 5-year lows (see chart), amid a lack of buying interest with several January cargoes still available. A wider Brent/Dubai cash spread is making it more difficult to arb West African barrels into Asia, while supplies in the Atlantic Basin are high due to an increase in Iraqi crude out of Ceyhan as well as greater availability of BTC Blend with February loadings pencilled in at a multiyear high of 820,000 b/d....MUCH MORE
But, to quote Churchill when he was speaking on a more serious matter:
"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
Mansion House, London
November 9, 1942
