March 11, 2020 / 2:34 PM / 19 days ago

Shell eyes tankers for oil floating storage after price collapse

LONDON (Reuters) - Royal Dutch Shell (RDSa.L) is in talks to charter at least three supertankers to store crude oil at sea as traders brace for a sharp rise in global stocks after OPEC and its allies abandoned a production cut deal, shipping sources said on Wednesday.

FILE PHOTO: Shell branding is seen at a petrol station in west London, January 29, 2015. REUTERS/Toby Melville

Shell has provisionally booked three 2 million barrel vessels, known as very large crude carriers (VLCCs), for storage options for at least three months, the sources said.

A Shell spokeswoman declined to comment.

Once the charters were fully negotiated, or fixed, they would be the first tankers to be used for floating storage after the recent fall in oil prices. [O/R]

The shipping sources said at least one of the vessels had an option to store oil in the United States.

Oil prices and the broader crude market pricing structure collapsed in recent days after OPEC and other major producing nations ended an output cut deal.

A glut of crude oil in global spot markets is forcing the price of oil for immediate delivery below forward futures costs, known as a contango structure, making it potentially profitable to buy oil, store it offshore onboard vessels and sell it later at higher prices.

Brent crude futures for nearby delivery are trading at their biggest discount to the November contract in over four years, according to Refinitiv data. LCOc1-LCOc7

Baltic Exchange data on Tuesday showed the cost of hiring a tanker on the benchmark Middle East Gulf to China route had jumped to over $70,000 a day from under $40,000 a day on Monday and under $20,000 a day last month.

Daily charter rates were being quoted around $100,000 a day on Wednesday, indicating demand for tankers.

While another shipping source said the economics of floating storage were still not viable at this stage, others pointed to the growing glut of oil and the need to park cargoes.

“This floating storage may occur even if the economics of the contango do not appear to work simply because it will be difficult to immediately find a home for the excess cargo volumes,” broker Clarksons Platou Securities said in a note.

In another sign of the freight market heating up, Saudi Arabia’s national shipping group, Bahri 4030.SE has tentatively chartered as many as 14 supertankers to ship crude globally as the Kingdom follows through on its promise to ramp up crude output.

“Bahri owns its own ships and rarely comes to the spot market for more vessels. This is therefore a good indication that the taps are opening again on the long-haul (Middle East Gulf-U.S. Gulf) trade,” Clarksons Platou said.

Graphic: Contango is back here

Additional reporting by Devika Krishna Kumar in New York, Editing by Jane Merriman, David Evans and Philippa Fletcher

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