Chinese oil major Unipec has provisionally hired an ultra large crude carrier possibly to store crude around Singapore, market participants said.
The 442,000-dwt and 2002 built, TI Europe, has been taken on a six-month time charter by Unipec at a daily rate of $25,600, brokers, shipowners and charterers said.
There is an option to extend the time charter period by another six months at $28,600/day, they said.
The TI Europe was earlier used for floating storage of fuel oil by Litasco and St Shipping, which is trading house Glencore’s shipping arm, according to the sources.
“There is a contango in the [Brent] market, so putting two plus two together, it has to be for crude storage,” said a source with a VLCC owner.
Sources at Unipec declined to comment.
There is an open contango in oil markets that has made storage a profitable option and can potentially tighten the supply of super tankers in the spot market, Norwegian bank DNB said in a recent report.
The contango developed last month mainly due to surplus crude in the Atlantic basin because of weak demand in Europe and the US, continuing growth in US shale crude output, and the return of exports from Libya.
“The spread between the front-month and three-month forward Brent crude is $12/mt. This implies $25,390 of potential daily profit from storage,” the report had said adding the contango would have to fall 96 cents/barrel to close the spread.
The spread has now shrunk below $8/mt, according to the latest market data, making some market participants skeptical of the viability of taking VLCCs for floating storage.
“If I was them [Unipec] I would put West African crude [as] it has got the highest returns right now,” a trader of Middle Eastern sour crudes said.
Qua Iboe, Nigeria’s flagship grade was assessed at Dated Brent plus $1.10/b on Tuesday, higher than five-year low of 65 cents/b at the end of July, but well below the $2.27/b premium the grade was assessed at on average for the first six months of this year.
West African crudes have come under intense pressure from a combination of lower demand from the US as domestic crude production has risen and the return of Libyan light sweet crude exports.
“Unipec may trade one [crude] shipment from Rotterdam to Europe and then store it to wait for a good oil price,” said a VLCC broker in China.
“We are looking for opportunities to give our ships for floating storage if inquires come by,” said a source with a VLCC owner in Singapore.
Nevertheless, if demand for such floating storage picks up, it will potentially push up the spot market rates of VLCCs, which in turn will support the time charter rates, making such future storage less attractive, the same source said.
Sources said some ships have already been taken for delivering crude into relatively cheaper onshore tanks near South Africa’s Saldanha Bay, which helps sellers keep their options open to move the cargo eventually to either Eastern or Western destinations.
However, such delivery into landed tanks usually takes places in smaller vessels, they said.