Trading firms switch to floating storage
Business Times 24 Dec 09;
(SINGAPORE) At least 12 supertankers holding fuel oil and crude are anchored in south Malaysian waters, up from eight previously, as a shortage of landed tanks spurs a shift to floating storage, traders said.
More trading firms, including Swiss trader Mercuria Energy trading and Southern Petrochemical Co Ltd, an affiliate of China's Sinopec Group, are venturing into the residual fuels market to capitalise on potentially firm trade margins.
Others such as European traders Trafigura and Astra Oil are riding on the market's contango structure, where weak prompt demand encourages players to store crude supplies for future sale in expectation of a price recovery.
These traders are time-chartering very large crude carriers (VLCCs) to store fuel oil and crude due to a lack of long-term storage capacity in Singapore.
Floating storage leases also offer trading firms more flexibility.
Total commercial storage capacity in Singapore - excluding capacity held by oil majors - stands at 10.8 million cubic metres, and all existing landed tanks are currently occupied by long-term leases, industry sources said.
Attractive trading opportunities abound in both fuel oil and crude, spurring a rise in storage plays, trading sources said.
Last week, Asian fuel oil physical differentials turned positive for the first time in 11/2 months, and the front timespread has remained in backwardation for a fourth day, on expectations of tighter Western arbitrage supplies in January.
Other than the front month, the contango structure remains in place for the forward months.
As for crude, the spread between February and March WTI contracts remains in contango, but that has narrowed to 67 cents on Wednesday from US$1.57 at the start of the month.
Oil prices have more than doubled from below US$33 last December, but are still 50 per cent below the record of more than US$147 hit in July 2008.
Although freight rates have climbed in recent weeks, reflecting the recovery in the global economy, time-charter rates for VLCCs on a one-year basis remain relatively affordable.
The cost of chartering a VLCC for a year is about US$30,000 per day, up 3-7 per cent from US$28,000-29,000 per day three months ago, shipping sources said.
Three- and six-month charter rates have risen more - by as much as 25-30 per cent - due to the surge in spot market rates.
Four new tankers have joined the eight vessels anchored off Tanjong Pelepas and Pasir Gudang in south Malaysian waters, storing fuel oil and/or crude, shipping and trading sources said.
They are Sfakia, leased by Trafigura; the Titan Gemini, chartered by both Astra and Trafigura; the Titan Scorpio, leased by Glencore; and the Edinburgh, chartered by European firm Arcadia Energy\. \-- Reuters
