London — North Sea traders have been eying floating storage options this week as discounted prompt oil and a relatively wide contango structure peaked interest in floating storage plays, shipping sources and traders said. "A few have been asking questions, could be for spot fixtures with storage options done like a demurrage rate," a shipbroker said.
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With land-based storage in short supply globally -- estimated to be more than 80% full in Northwest Europe -- traders have been inquiring about the availability of VLCCs with floating storage options for chartering.
A glut of prompt loading North Sea crude drove deep discounts on Brent and Forties Monday and Tuesday, while fundamental weakness in the global oil complex kept the January/February contango structure below minus 80 cents/b from Monday through to Thursday.
"It's not impossible when you look at differentials, futures structure is probably not weak enough but from a Dated Brent point of view, if you can lock it at a $2/b discount [floating storage can work]," a trader said.
However, with physical differentials for North Sea grades staging a recovery in the latter half of the week as rumors of traders looking to pick up cheap barrels either for storage or arbitrage filtered through to other participants, traders said the window to fix vessels for floating storage might have closed.
"Now that the news is around, offers have moved up accordingly...but if you locked in the storage economics already it could still work," a second trader said.
Demurrage rates on VLCCs are currently around $60,000-$70,000/day -- 3 cents/b to 3.5 cents/b per day -- requiring an effective $1.085/b per month of carry.
While futures structure has not weakened enough to pay for floating storage, the discount of prompt Forties cargoes earlier in the week attracted those who felt the grade had been oversold.
"They've taken a big view on the differential, prompt oil is cheap right now... it was probably oversold," the second trader said.
Rather than longer-term time-charters, traders were heard to be looking at spot chartered vessels, suggesting a shorter time horizon for these North Sea floating storage plays.
"People were probably looking [to float the oil] for two months...now it's less attractive, maybe 15-20 days," the trader said.
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