The global glut is forcing oil traders to source any available tanks to maximise profits when prices recover. The traders are fixing tankers to take North Sea, West African and Arab crudes for storage, hoping for the repeat of 2008-2009 periods in which increase in oil prices led to making of super profit within a short while.
Oil trading companies chartered around fifteen supertankers in January to store crude for future sale. The chartered supertankers have the storage capacity of around 30 million barrels. These very large and ultra large crude carriers are expected to operate mostly in Singapore and the Persian Gulf, with an option for storage. Another positive for this type of floating storage is the willingness of ship owners to agree on time charters which are about 50 percent lower in price than the current spot rates.
BP, Mercuria, Total and Chevron all booked Suezmaxe to deliver crude with traders saying that a good number of the barrels will go into storage. Mercuria booked the Suezmax Genmar Harriet G to take Ekofisk crude from Teesport to Saldanha Bay in South Africa. Mercuria is also sending additional 130,000 tons from West Africa to Saldhana Bay on the Nordic Sprinter. Saldanha Bay has a large oil storage terminal, with a combined capacity of 45 million barrels. It is seen as an attractive storage location as oil can easily move to either Europe or Asia, depending on where demand first emerges. Traders have also booked tankers to take West African and Arab crudes to Durban in South Africa, where Vopak operates a tank farm for oil storage.
West African crude head to US
West African crude are now heading back to the United States for storage until prices recover. Oil firms including Swiss-based Glencore, Italian energy major ENI and Canada’s biggest oil company Suncor have lined up ships to take at least 10 million barrels of West African crude to North America, ship brokers say, with freight bookings and tanker tracking also showing the moves.
The move revives a trade that had been largely shut off by the US shale boom, as West African barrels that used to be imported to the United States were some of the first to be pushed out by soaring output in Texas and North Dakota. While US oil inventories are already near the highest ever level for this time of year, the United States has far more spare storage tank capacity available than Europe or Asia.
Refiners in the United States and Canada are also looking for cheaper barrels as US benchmark West Texas Intermediate has roughly hit parity with international marker North Sea Brent after having traded at a discount to seaborne cargoes for over 4 years.
With spot oil prices down almost 60 percent since June to below $50 a barrel and future contracts for delivery next year trading far higher, the incentive to store crude has risen. While traders have already booked tankers to store at least 25 million barrels of oil at sea, land-based storage may be a more economical option for those who can find it.
According to industry sources and freight bookings, at least 10 tankers are set to carry a total of 10 million barrels from West Africa to the United States, with some going to the US Gulf Coast where much of the country’s storage tank capacity lies.
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The 1 million barrel Almi Galaxy suezmax tanker is shown in AIS tanker tracking as sailing to the Louisiana Offshore Oil Terminal (LOOP), having been chartered by ENI to lift crude from the Cameroon port of Kribi.
“They’re forcing all the crude on us,” one U.S.-based trader said. “We have a lot of stock, but this (the Gulf Coast) is also the only place to push it.”
Glencore’s shipping arm ST Shipping has chartered 2 suezmax tankers capable of carrying 1 million barrels each, the Genmar Kara G and SKS Spey. Vitol, the world’s largest independent oil trader, and refiner Tesoro are also looking at taking tankers to the US Gulf.
Nigeria, Angola emerge as beneficiary
Prior to the height of the US shale boom, West African producers like Nigeria and Angola had been big suppliers, sending a total of almost 1 million barrels per day to the United States between 2010 and 2012.
But given that most crude from West Africa is of a similar quality to the light sweet crude produced in the US shale boom, imports from Nigeria and Angola quickly collapsed, falling to an average of a little over 320,000 bpd last year, data from the US Energy Information Administration shows with US imported zero crude from Nigeria in August 2014.
The global oil glut has hit West African cargoes particularly hard, as they try to find new homes in Asia and Europe. Price differentials for Nigeria’s largest export grade, Qua Iboe, fell to the lowest since 2005 this month.
Cheap oil boost refining
Refining business will improve in 2015 on the heels of cheap oil prices which are boosting demand growth. Low oil prices are encouraging continued global demand for refined products like motor fuels gasoline and diesel. The refining business benefits from lower crude prices in a number of ways. For oil majors who refine, the refining boom more than made up for gloomy returns from oil and natural gas production as tumbling crude prices and faltering output dented profits from those businesses.
Cheap crudes are going to refineries on the East Coast, which generally process lighter, sweeter crude than their counterparts in the Gulf. Some may be used as alternatives to shale oil from North Dakota, which needs to be railed in on expensive trains.
Suncor has loaded two 1 million barrel cargoes from Nigeria this week, the Max Jacob and Amoureux, according to Reuters shipping data and information provided by brokers. In October the company unloaded some North Sea cargoes in Portland, Maine, before shipping them north to its refineries in Canada by pipeline.
US refineries strike threatens optimism
The strike by oil workers at plants accounting for 10 percent of US refining capacity could threaten the recent re-entry of West African crude into the country. The United Steelworkers union that represents employees at more than 200 refineries, terminals, pipelines and chemical plants stopped work Sunday at nine sites after failing to agree on a renewed labor contract. More refineries are standing by to join the sites on strike.
According to analysts, the biggest strike at US refineries since 1980 was set to add to the world’s oversupply of oil, weighing once more on prices. The refineries on strike can together produce 1.82 million barrels of fuel per day, about 10 percent of US capacity.
The union has been renegotiating a three-year national contract since 21 January. The latest offer was the fifth proposal rejected by the union. It wants to double the size of the annual pay increases from the previous agreement, increased healthcare coverage and reduced use of non-union contract workers. The last nationwide work stoppage in 1980 lasted three months.
