As Tank Farms Fill Up, Floating Storage Takes Off
As tank farms fill up on shore, ports around the world are seeing more laden VLCCs at anchorage and tanker owners are reaping the benefits of high floating storage rates. Shipbrokers estimate that about 50 supertankers are currently in use for storage, along with smaller Suezmaxes, Aframaxes and clean MR and LR vessels used to store refined products. According to a recent count by Bloomberg, more than 30 vessels are currently providing floating storage off the coast of California alone.
“It’s the first time ever that we get more calls to book ships to store oil than to move it," one Singaporean shipbroker told the Wall Street Journal.
Cargo owners have a strong incentive to find storage. On Tuesday, the American WTI crude index was trading in negative terrority for front-month delivery. For one day, any buyer who could accept a May-dated delivery from the distribution hub at Cushing, Oklahoma - 500 miles inland - could get paid as much as $40 per barrel to remove unstorable oil.
By Thursday, the front-month WTI recovered to prices in the $17 range, but buying and storing for a later sale still offered a potential for profit. WTI contracts for November delivery were priced in the range of $28-30, nearly double the value for June.
According to data from analytics firm Vortexa, this time-driven profit motive is quickly translating into demand for floating storage. An estimated 114-150 million barrels of crude oil are in storage at sea around the world, the firm estimates. Nearly 70 million barrels of oil products - diesel, gasoline, jet fuel and other refined petroleum - are also currently stored aboard clean tankers around the globe, the company assesses.
This pattern may accelerate in the months ahead if current demand trends continue. “Unless global lockdown measures are eased, or a further production cuts are agreed upon, there is a very real possibility that we’ll see a free-fall in the price of Brent oil futures, and a chance that [Brent] will trade at a negative price in the short term,” said Nemo Qin, senior analyst at investment firm Etoro, speaking to CNBC.
Though American oil is currently among the cheapest sources available, Jones Act tankers will be largely excluded from the floating storage boom, according to U.S. shipowner and midstream operator Kinder Morgan. The vessels in the Jones Act tanker fleet are not large enough to make floating storage economical, the company's executives said in an earnings call Wednesday.