Oil products stored in tankers at sea fall. Classic!

Trend over recent weeks likely to put more pressure on clean tanker market



(LONDON) The volume of refined oil products held on tankers at sea has fallen in recent weeks and is likely to put more pressure on the clean tanker market already struggling with supply worries, analysts said on Tuesday.


Last year a price play known as a contango, or cheaper prompt oil, had encouraged traders to store cargoes at sea with a view to selling them later at higher prices, helping to soak up available vessels.

But the contango on the oil futures market has narrowed in recent weeks, making it less attractive to hold stocks in floating storage.

Broker ICAP Shipping said on Tuesday the volume of clean oil products held on tankers at sea had fallen to 80.22 million barrels from 89.41 million barrels last month.

ICAP Shipping estimated that 102 tankers were storing clean oil products globally, down from 116 vessels on Jan 12.

'Floating storage coming off does signal that demand is picking up but it also adds supply growth to the market which will keep (freight) rates in check,' Tim Smith, a shipping analyst with consultants MSI, said. 'In the short term it will have a negative impact on the tanker market because the supply will have an immediate effect and the owners coming back with tonnage will need to get trade for their vessels.'

Another shipping analyst estimated around 107 tankers were storing oil products at the moment.





Broker SSY said separately on Monday the volume of clean oil products had dropped at the end of January to 72.67 million barrels or 102 tankers versus 85.63 million barrels or 122 vessels at end-December.

No official data exists for storage volumes at sea. Traders of middle distillates, such as gas oil for heating, said the amount held at sea still remained unexpectedly high given the cold weather in the Northern Hemisphere.

'It reflects to me a smaller change than we thought we would have seen,' a distillates trader said, referring to the data.

Traders said bulk of the clean products in storage at sea are middle distillates.

The volume of crude oil in storage has also fallen.

Broker E A Gibson estimated the total number of tankers employed for both clean products and crude oil at the end of January had fallen to 119 vessels from 141 at the end of 2009.

'Given the support to rates in 2009, storage will be a key factor in determining the market in 2010,' E A Gibson said.

SSY estimated that the volume of stored crude oil dropped to 25.64 million barrels or 14 vessels at the end of last month from 40.85 million barrels or 23 ships at the end of 2009.

SSY said 14 Very Large Crude Carriers (VLCCs) were holding crude at the end of January compared with 22 VLCCs and a smaller aframax tanker at the end of December.

A VLCC can store up to two million barrels of oil. Brokers estimated that the volume of crude oil in storage reached a peak in April last year at around 60 VLCCs.

Analysts have said the crude tanker market was less likely to be less affected if crude oil stocks come off storage due to less vessels in use and some set to retire. -- Reuters