Singapore: The widening of contango market conditions for Brent crude is prompting major trading houses to charter VLCCs to store oil at sea – including one ULCC that will be delivered at Singapore.
Brent crude futures were trading at below $50/bbl in Asia on Monday due to concerns about oversupply. February ICE Brent crude is now at around a $3.58/bbl discount to May.
The ULCC vessel TI Oceania (441,000 dwt, built 2003) was fixed by Vitol on subjects last week, and will be delivered to Singapore. The 11-month timecharter was fixed at a rate of around $40,000 per day expressly for use as floating storage, brokers confirmed to SeaShip News.
The ULCC has been in lay-up for almost a year and is currently anchored off Labuan, Malaysia, according to AIS data.
So far this month, 13 VLCCs and one ULCC have been taken out on timecharter with contractual storage options attached, according to Platts data. Together, these vessels represent around 30m bbl of storage capacity.
Over the past week, oil majors Vitol, Shell, Koch and Trafigura have all taken VLCC or ULCCs on timecharter for six to 12 months for delivery in Singapore or the Middle East Gulf. Several of these fixtures include an option to extend by up to a year.
The strength of the current VLCC market, however, means the economics do not work for short-term floating storage of crude, according to brokers’ estimations.
Connecticut-based shipbroking house Charles R Weber assesses one- to three-month VLCC period rates at $70,000/day, and six-month rates at $55,000/day, basis delivery in Singapore or the Middle East.
“Basis these assessments and including all operational, insurance, and capital costs, the economics to support floating storage appear to be absent for storage contracts less than three months,” the shipbroker said in a report on Monday. “For those greater than three months, opportunity rises in line with the declining daily cost of the time charter.
“Owners are not keen to part with their units for shorterâ€term storage contracts or time charters without commanding a premium compensating for the difference between the present oneâ€year time charter assessment of $40,000/day and present returns,” the report said. [12/01/15]