Traders continue to keep a watchful eye to take advantage of any
opportunities to exploit contango play, but (so far) the synergies
required to make this happen remain elusive. Even short term contango
employment is hard to square as all of the dynamics required for this to
happen need to move together. For the time being, floating storage
demands will continue to rely upon to logistical problems. However, the
issue is not going away, it’s just got parked in another place. The
recent announcement by a handful of OPEC members and Russia not to
increase production has done nothing to ease the current oil glut which translates into doing little to stem the
downward pressure on the oil price other than a temporary uplift.
According to Gibson, “for contango based floating storage play to
take place, the discount in oil prices for prompt delivery has to deepen
relative to forward assessments, a drop in timecharter rates would also
help. The last significant floating storage took place 2009-10 when we
witnessed a very different scenario from what we are seeing today. Back
then the world had just entered into the economic slump following the
banking collapse in the autumn of 2008. As a result, OPEC was
continually revising oil demand as the crisis took hold. On the supply
side 2009-10 saw 113 VLCCs delivered as a result of the glut of ordering
through the tanker market boom years 2005-08 when we believed that the
BRIC economies would drive forward crude demand. Following the banking
collapse, floating storage cushioned the impact of the tonnage surplus,
providing owners with an additinal income stream ahead of the recovery
albeit at ‘more challenging’ time charter rates. Back in 2009/10 the
average 1 year VLCC timecharter rate was around $37,500/ day”, said the
shipbroker.
Gibson notes that “today’s picture is very different. Crude
production is at record levels, with no indication of a slow down. While
US production is slowing, crude stocks levels in the US are at their
highest since records began. Back in 2010 (Jan-Apr), most floating
storage took place in the Gulf of Mexico, not surprisingly, today there
is none. Today, floating storage is mostly for operational reasons (not
contango based) or in the long term fuel oil storage hub in the
Singapore/Malaysian region. Also there is some limited storage in the
Middle East Gulf, in addition to the Iranian NITC positions. On the
supply side, we have witnessed only moderate fleet growth over the past
year or so which has notably lifted timecharter rates. Of course, the
strength of the tanker market since the oil price shock commenced in
June 2014 has led to more brisk investment which will result in a spurt
in fleet growth starting in the second part of this year”.
According to the shipbroker, “naturally owners are keen for the
return of this phenomeon, particularly if the crude tanker spot market
continues to soften, with the resulting influence on timecharter rates.
Owners will continue to pursue storage options in their charterparties,
as they did in January 2015. Very few of these options actually ended up
loading cargo to store. However, if overproduction persists and the
delivery profile impacts on spot rates, we could witness an increase in
demand for floating storage in the second half of this year – but will
it be contango based play? Either way, whether contango floating storage
materialises or not, whilst prompt oil prices remain below the forward
assessments, this sets the floor to short term VLCC rates”, Gibson
concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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