Oil punt makes big bucks but coastlines at risk

By Tom Bergin - Analysis

LONDON (Reuters) - Big international oil companies are making hundreds of millions of dollars storing crude on tankers offshore in a trading play that environmentalists say sidesteps shipping rules and puts coastlines at risk.

The $100 per barrel drop in crude oil prices since July, to around $50, has pushed the market into an unusually sharp contango -- a scenario where the cost of oil today is much lower than the price of oil in the future.

Meanwhile, the global economic crisis has led to a more than halving in the cost of chartering oil tankers since last year.

This combination has created an opportunity to buy oil, simultaneously sell it for future delivery to lock in a profit, while storing the oil at sea until the delivery date.

London-based oil major BP made an exceptional gain of around $500 million in its downstream arm in the first three months of 2009, mainly due to the contango trade, Chief Financial Officer Byron Grote told analysts this week.

U.S. rival ConocoPhillips said last week that it spent around $1 billion in the first quarter buying crude to take advantage of the unusual market structure.

Other oil companies including Royal Dutch Shell said they also benefited from arbitraging the contango, while ship brokers said trading groups such as Swiss-based Gunvor and U.S.-based Koch Industries also participated.

In total, close to 100 million barrels of crude are being stored offshore, compared to none a year ago, Jens Martin Jensen, acting chief executive of Frontline, one of the world's biggest independent oil tanker owners, said last week.