The industry’s biggest tankers could earn $35,000 a day this year, about $10,000 less than previously estimated
The oil tanker BW Luck is berthed near Chemoil Energy Ltd. storage tanks on Jurong Island in Singapore. It costs about $1.10 a barrel to store oil for a month on supertankers, ships known within the industry as very large crude carriers. Photographer: Munshi Ahmed/Bloomberg
(Bloomberg) — Rates for supertankers could be lower than anticipated as the incentive to store oil at sea diminishes, freeing up the vessels to compete for charters, according to RS Platou Markets A/S.
The industry’s biggest tankers could earn $35,000 a day this year, about $10,000 less than previously estimated, the Oslo-based investment bank said in a report on Monday. The higher figure assumed 1 percent of the global fleet would store crude, a trend that’s yet to materialize, said Frode Moerkedal, an Oslo-based analyst at Platou Markets.
Crude prices have plunged as the U.S. pumps the most in three decades and OPEC, supplier of about 40 percent of the world’s oil, keeps its own production steady to retain market share. That’s helped create what’s known as contango, where commodities for immediate supply are so much cheaper than in future months that it rewards traders to store.
“You would only store on a vessel if the onshore inventories were full,” Moerkedal said by phone on Monday. “It seems that the pace of onshore buildouts are slower than expected.”
The global oil market has 377 million barrels of spare onshore storage capacity available, Michael Wittner, the head of oil market research in New York for Societe Generale SA, wrote in an e-mailed report on March 14. That’s an increase of 73 percent from the firm’s February estimate of 218 million spare barrels of capacity available for global land storage. The numbers includes unused storage in China and India and exclude 120 million barrels of pipeline space in U.S.
It costs about $1.10 a barrel to store oil for a month on supertankers, ships known within the industry as very large crude carriers. Brent for June costs about $1 a barrel more than it does in May, according to data on the ICE Futures Europe exchange compiled by Bloomberg.
Brent for May settlement was 13 cents higher at $54.07 a barrel at 11:48 a.m. Singapore time.
For storage to work, the contango needs to exceed storage costs. A narrowing has prevented an increase in floating storage, the International Energy Agency said in a March 13.
The IEA raised its 2015 estimate of global oil demand by the most since it was introduced in July. Demand will rise this year by 1 million barrels a day, or 1.1 percent, to an average of 93.5 million a day.
While contango for Brent is narrowing, it’s at the widest for almost four years for West Texas Intermediate crude, the U.S. benchmark. This has prompted interest in floating storage in the U.S. Gulf for traders who have licenses to export cargoes to Canada, according to a report e-mailed by shipbroker Charles R Weber on Monday.
Any filling of land storage in the U.S. should only be temporary as refinery throughputs typically rise by a million barrels a day between March and May as refiners return from maintenance before the summer driving season, FBR Capital Markets said in a research note. A reduction in the number of rigs drilling for oil in the U.S. should begin to “affect production by as early as this summer,” it said.