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Traders look to South Africa's Saldanha Bay for crude storage as supply glut looms

Highlights

West African crude likely to be stored at South African terminal

Saldanha Bay emerges as popular storage hub

Boasts capacity of almost 60 million barrels

London — South Africa's Saldanha Bay is set to become a hub for crude oil storage activity in the coming weeks, as traders look to lock in future profits during the current oil price rout.

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Shipping and trading sources have told S&P Global Platts that traders are already starting to send crude to the key regional terminal of Saldanha Bay as the clamor for storage opportunities has already begun.

The Suezmax Brazos has been placed on subjects on a Nigeria to Europe route, with options to go to Saldanha Bay, according to shipbroking reports.

There have been a few more inquiries for cargoes going from West Africa to the South African oil terminal, traders added, with more fixtures likely this week.

"There are lots of unsold barrels in West Africa and even though we aren't seeing many ships actually fixed there [yet], Saldanha Bay is a possible destination for storage for all of these," said a shipbroker.

Storage plays

Saldanha Bay is a strategic storage point, with a capacity of almost 60 million barrels, located between the demand centers of Europe and Asia.

The terminal is popular with traders for storing crude. In the past decade, traders have regularly used the terminal, giving them the option to ship either to Europe or Asia, depending on prevailing economics.

Sources said West African crude is likely to be the main oil being shipped to this terminal, as the region is already facing a huge glut of light sweet oil.

Trading sources said the strong contango on the oil market is making storage plays economically viable.

In a contango market, the forward price of oil is above the prompt price, implying weak prompt demand and growing oversupply, encouraging storage.

Contango is normally considered a key indicator of a depressed oil market and oil traders have to store oil on land or ship to cut risks.