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Lukoil books US Gulf Coast VLCC floating storage: sources

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Lukoil books US Gulf Coast VLCC floating storage: sources

Highlights

Russia's Lukoil has booked the Gener8 Nautilus VLCC to keep up to 2million barrels of crude offshore in floating storage prior to the end of theyear, when refiners generally aim to draw down their inventories to reduce taxobligations, sources said Monday.

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US crude imports declined 8% between the week that ended November 10 andthe week that ended December 1, according to US Energy InformationAdministration data.

"On the V to V business, I had the suspicion that it was Lukoil," ashipowner said. "We had heard through the grapevine that OSG had done a V to Vtransfer."

The offshore storage has been negotiated for 60 days so far and storagefees were indicated at $40,000/day regardless of the volume actually stored,according to one source. The Gener8 Nautilus was due to receive the cargo fromthe VLCC Leicester.

Lukoil was previously storing crude on two VLCCs, one of which dischargedto shore and the other to the Gener8 Nautilus, according to the source.

The Gener8 Nautilus, a 2016-built 298,991 dwt vessel was last seen at theLouisiana Offshore Oil Port (LOOP) terminal on Saturday before she sailed forthe Galveston Offshore Lightering Area on Sunday, according to cFlow, Platts'trade flow software.

The Leicester, a 2016-built 300,853 dwt VLCC, first arrived at LOOP onDecember 2 and set sail for Cayo Arcas on the east coast of Mexico on Sunday,cFlow data show. Draft history shows the Leicester as fully laden from thethird decade of October until her arrival at LOOP.

Lukoil was not immediately available for comment.

A $40,000/d cost for storing crude offshore on a VLCC capable of holdingup to 2 million barrels amounts to 60 cents/b per month and compares with acurrent onshore storage cost of 35 cents/b per month, according to onshorestorage requests at the Tank Tiger, a tank storage clearing house, seenMonday.

"The storage charter just delays the favorable [US Gulf Coast] positionrather than changes it out with an unfavorable China position," a shipownersaid when asked how the storage revenue compares with freight for a voyagecharter.

The cost of carrying crude from the Caribbean to China was pegged at $5.1million on Monday morning, according to S&P Global Platts data.

Vessels loading on the US Gulf Coast generally have a freight advantageof $200,000 compared with loading in the Caribbean, due to substantiallyhigher port costs in the latter region.

US crude exports have risen 63% to an average of 899,400 b/d in the firstnine months of 2017 from 550,900 b/d in the year-ago period, according to USCensus data. In October, China alone took close to 26% of a total of 1.731million b/d of crude exported by the US, the Census data show.

In September, Lukoil explored crude floating storage options on the USGulf Coast with Texas oil refiner Motiva, about three weeks after HurricaneHarvey forced the Texas refining industry to shut amid widespread rain andflooding, sources told Platts.

At that time, Motiva, which operates the US' largest refinery, the603,000 b/d Port Arthur facility, reportedly put on subjects the Eagle SanDiego Suezmax at an unknown rate for potential floating storage.

--Barbara Troner, barbara.troner@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com