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Total books VLCC with storage option as crude oil falls below $100

Highlights

Oil traders are aggressively looking to hire VLCCs for storage purpose due to weak demand and falling prices, with French oil major Total reportedly fixing a VLCC with a storage option in the Persian Gulf, participants tracking the supertanker segment said Tuesday.

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The company has taken the Xin Yong Yang at 43 Worldscale points for September 25 loading on the Persian Gulf to East route, basis 270,000 mt, with a 10-to-30 days storage option at $37,500/day, owners, brokers and charterers said.

"We heard that the storage will be at Fujairah," said a VLCC broker in Tokyo. Charterers think crude price will be higher later, the broker said.

Total executives could not be immediately reached for comment.


Another broker in Singapore said, "There is plenty of crude floating around but this is done more in smaller ships."

ICE Brent crude futures traded below $100/b Tuesday due to oversupply as Libyan exports and the upcoming maintenance runs by some refineries weighed on prices.

Weak crude demand has also brought down the number of VLCC fixtures.

One of the reasons driving demand for ships for storage is that there have been fewer loadings this month from the Persian Gulf and the Red Sea, the same Singapore-based broker said.

So far, 79 VLCC fixtures for Persian Gulf and Red Sea loading are estimated done for September, including 67 for the East, four for the West and eight for optional voyages, according to brokers.

Overall fixtures are estimated at 123 for August, including 17 for destinations in the West and 106 for the East.

Though there are still outstanding cargoes for loading in the third decade of September that are yet to be covered with tonnage, market participants expect fixtures to be lower than August.

Weaker demand has dragged down crude prices, leaving suppliers with no option but to hold back their inventories and hope for higher rates in the short term.

Storage of crude in landed tanks is not always available at a preferable location and for exactly the duration a company wants to hold the volume.

In contrast, chartering of ships for storage is relatively flexible in terms of location and duration.

"One possibility is that they [Total] will sell this cargo if they get the price [they are aiming at] and then top up the ship with another cargo," one of the brokers said.

Recently, an ultra large crude carrier, the 442,000 dwt, 2002 built TI Europe, was taken on a six-month time charter by Unipec at a daily rate of $25,600.

There is an option to extend the time charter period by another six months at $28,600/day.

Such options impart flexibility in the trade of floating crude.

Shipowners are also hoping that the trend of holding crude in floating storage will pick up.

"If the price of crude continues to fall, there will be more opportunities for ships being taken for storage," said a Singapore-based source with a VLCC owner.

Owners said that a short-term storage deal can be compared with a round-voyage from Persian Gulf to China, which will take almost two months.

If the daily earnings are attractive, owners will give the ship for storage for the same duration, they said.

Nevertheless, the current forward structure of crude prices is not really an attractive storage opportunity because the contango is not deep enough for storage economics to work well, said an analyst with a North Asian refiner.

"This push into storage is not because there is a contango. [Instead] it is because there is [less] demand, which has led to a contango," he said.

The spread between the front-month and three-month forward Brent crude has declined below $10/mt from $12/mt nearly a month earlier.

Time charter rates for VLCCs are also on the rise in anticipation of more demand, though not necessarily for storage.

Earlier this year, the 2010-built, 321,000 dwt Blue Topaz was taken for a 12-month time charter by Koch at a daily rate of $22,000, according to brokers.

Market participants said time charter rates for the same duration would now be above $25,000/day, perhaps even close to $28,000/day.

--Sameer C. Mohindru, sameer.mohindru@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com