Surge in At-Sea Oil Storage as Traders Seek Arbitrage

VLCC rates are exceeding $40,000 per day

At-sea oil storage has this week risen to 40 million barrels (bbl) from 25 million bbl last week, Reuters reports.

Oil traders are said to have hired up to 20 tankers to store the crude oil, which is currently selling for below $50 bbl, in the hope of profiting in the futures market or when the price recovers.

"Floating storage remains a major focus in the tanker market as charterers have been fairly active in securing VLCCs [very large crude carriers] on time charters, with options to use the vessels as floating storage," said Clarkson Capital Markets's Omar Nokta.

It is understood that firms including Trafigura, Votol, Gunvor, Koch, and Shell have been seeking to book tankers as floating storage for terms of up to 12 months.

Monthly floating storage costs are estimated in the region of $1.5 million to $1.8 million per tanker, when costs such as bunkers and insurance are taken into account.

But traders are still expecting to profit by the strategy, with December 2015 Brent crude futures trading $8 above spot.

The oil price slump in 2009 is said to have led to 100 million bbl of oil being consigned to floating storage.

The news was said by one analyst to be the "cherry on the cake" for an already recovering tanker market as charter rates have increased significantly.

Time charter rates for large vessels have reportedly exceeded $40,000 per day, representing a rise of thousands of dollars per day in the course of a week, reaching double the level quoted in the same period last year.

In December, Nordic American Tankers said demand is rising in the East and that oil is being carried longer distances.