London — The amount of crude and condensate hoarded on oil tankers worldwide has dived close to a ten-month low amid bullish signs on the physical oil market, encouraging traders to clear storage barrels, analysts and shipping sources said Jan. 11.
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The surprise announcement by Saudi Arabia, saying it will cut an additional 1 million b/d in February and March, provided some much-needed and instantaneous relief to an oil market, still hobbling from wobbly oil demand forecasts due to rising coronavirus cases in developed economies.
Sources said the Saudi output cuts would accelerate the offloading of oil from storage, with further drawdowns likely, supported also by strong Asian demand.
Data intelligence firm Kpler estimates that floating storage volumes were around 92.64 million barrels for the week beginning Jan. 10, the lowest since late March.
The bulk of this continues to be in Asia, with China and Southeast Asia making up for almost 51 million barrels.
Floating crude volumes peaked at almost 233 million barrels in late June, but there has been a gradual decline since then as more and more VLCCs and Suezmaxes have emerged out of storage.
The Kpler data estimates the volume of oil on tankers that are idled offshore for seven days or more.
Some of the storage in Asia has to do with congestion outside Chinese ports. Sources said congestion in Chinese ports had decreased in the past few weeks, but charterers were now discharging cargoes in Singapore instead of having to pay demurrage costs while waiting to discharge in China.
"When they decide to move the oil, they charter smaller vessels from Singapore to China," a second broker said. "In that way it's more cost efficient, and contributes to less oil being accounted for as floating."
ICE Brent prices jumped to a 11-month high of $56.39/b on Jan. 11, and have risen by more than $5/b since the Saudi cut was signaled in the week ended Jan. 10.
In the past week, the Brent forward curve has strengthened sharply, with the front-two months of the Brent contract flipping from a mild contango to a mild backwardated structure.
Strong Asian demand is encouraging traders to clear some floating storage barrels, and take advantage of the change in market structure.
"The backwardation in the oil market is supporting increased draws from floating storage," a broker said. "Despite the fact that owners lower their period charter price, it doesn't draw attention for floating storage."
A one-year old modern VLCC period charter is currently averaging $28,500/day, according to the research arm of ship brokerage Fearnleys.
During the floating storage rush in March and April last year, time charter bookings for short periods of around six months were estimated at around $120,000/day for VLCCs, and periods up to one year at around $85,000/day.
The VLCC Olympic Lyra was placed on subjects on Jan. 11 by a trading house out of Saldanha Bay to go East, sources said, another sign that Asian demand remains buoyant.
Saldanha Bay in South Africa, which has a capacity to stockpile around 50 million barrels, has emerged as a frequent destination for storing crude.
"We project that benchmark crude and refined products markets will remain in backwardation throughout much of 2021 which suggests that floating storage will continue to steadily draw throughout the foreseeable future," Alphatanker, a market analysis division of shipping brokerage BRS said in a recent research note. "These volumes have come ashore in Asia which is likely driven by strong oil demand there."