Statoil: Crude Market Contango "Not High Enough" to Use Floating Storage

The contango between the first and second months has narrowed over 70 percent since last month

Norway’s Statoil says using floating storage to take advantage of a crude oil market contango is not currently a profitable strategy, Reuters reports.

Statoil is making money by storing oil to sell at higher prices in the future, but using tankers to store oil at sea is not a viable option at present, said the oil company’s Head of Marketing and Trading, Rune Bjoernson.

The contango, the difference between current prices and higher future prices, is “not high enough, in our mind, to put it on floating storage,” he said.

According to the report, Brent crude prices for the “second month” were only $0.36 per barrel higher than “first month” prices, down from around $1.30 last month, meaning the short term contango has narrowed by more than 70 percent in a month.

Bjoernson said it costs around $0.25 to $0.30 per barrel to store oil in caverns, $0.50 to $0.80 to use land based tanks, and up to $1.20 for supertankers.

While tanker storage is always more expensive than land storage, not all oil market players have access to sufficient land-based storage tanks, however, which are mostly privately owned according to the report.

Last week the Port of Fujairah said it planned to expand storage capacity from around 8 million cubic metres to 14 million cbm by 2020 to meet rising demand.

Major Players Still Using Floating Storage

Earlier this year, the port said at the end of 2014 its storage terminals were 70 percent full and rising.

It is understood that various major players are nonetheless using floating storage, including Trafigura, Vitol, Gunvor, BP, and Shell but there has been a 50 percent drop in tankers scheduled for use as storage since last month.

Separately, Statoil’s Head of Market Analysis also predicted an oil market recovery on the back of news that supply is contracting as U.S. oil rig numbers continue to fall and oil producers announce cuts to capital expenditure.

Earlier this month, Glencore’s Head of Oil said there is no “super contango” in the oil market at the moment, adding that margins “are by no means, at current spread levels, attractive enough to encourage large amounts of floating storage.”