By Julia Payne and Florence Tan LONDON/SINGAPORE, Feb 11 (Reuters) – The oil market this week took a turn that could prompt traders to consider storing oil offshore as a growing crude surplus threatens to worsen.
The coronavirus outbreak in China, the world’s biggest oil importer, has triggered a fall of more than $10 in Brent crude futures as China’s state-owned and independent refiners reduce output in the face of tumbling fuel demand.
The Brent market flipped into contango last week <LCOc1-LCOc2> for the first time since July 2019 as prompt prices fell below forward prices.
But what started as a mild dip has powered past $1 per barrel looking further ahead.
The six-month Brent contango spread <LCOc1-LCOc7> from April to October on Feb. 10 widened to around $1.22 barrel, a level not seen since Dec. 2018.
The six-month spread on West Texas Intermediate (WTI) <CLc1-CLc7> hit $1.
Read: Singapore’s Floating Storage Flotilla Grows Ahead of IMO 2020
The move has analysts eyeing floating storage opportunities as traders could buy relatively cheap oil now and re-sell it at a profit later.
“The entire forward curve has also shifted into contango now,” ING bank said in a daily research note.
“There are reports of increased interest in floating storage as Chinese refiners push for deferred deliveries.”
Freight rates and storage prices have plummeted as the virus has hit demand and since the U.S. partially lifted sanctions on subsidiaries of Chinese shipping firm COSCO.
However, physical traders caution that while there are distressed cargoes, long-term storage is not yet a strategy as the Dubai benchmark, which rules Chinese buying, has not followed suit.
“Some cargoes will have to be floated…no one wants to buy a prompt cargo,” said a Singapore-based trader, adding that traders will likely have to take some losses.
“Right now, (the market structure) cannot cover the cost as February/March Dubai and dated Brent are still backwardated, which doesn’t make any sense.”
A spokesman for the port of Qingdao said that one of its two crude storage sites, Dongjuakou, still had space.
“Even though the call on crude in its storage areas has slowed due to the virus, there is no congestion yet,” a Qingdao spokesman said.
Further, the Organization of the Petroleum Exporting Countries (OPEC) and its allies may deepen existing output cuts and thereby erase the contango.
“It’s a big change especially after the strong backwardation we had in the Brent curve. To have that large money-maker contango, we’re not there yet. It’s really just the first step,” said Olivier Jakob of consultancy Petromatrix.
(Additional reporting by Muyu Xu in Beijing; editing by Jason Neely)
(c) Copyright Thomson Reuters 2019.
Sign up for gCaptain’s newsletter and never miss an update
Essential maritime and offshore news, insights, and updates delivered daily straight to your inbox
The Federal Maritime Commission says Spain’s port access restrictions on Israel-linked cargoes may violate U.S. shipping laws, prompting consideration of fines, port bans, and other penalties. The U.S. Federal Maritime...
U.S. Senator Ron Wyden has contacted seven maritime shipping companies as part of an inquiry into cartel-linked fuel smuggling between the United States and Mexico, asking the firms to explain their vetting procedures for ensuring their tankers aren't used to transport illicit hydrocarbons, according to copies of the letters seen by Reuters.
The U.S. Senate confirmed Stephen Carmel as Administrator of the Maritime Administration on Thursday ending months of uncertainty over leadership at the agency tasked with revitalizing America’s domestic shipbuilding industry....
Subscribe to gCaptain Daily and stay informed with the latest global maritime and offshore news
Essential news coupled with the finest maritime content sourced from across the globe.
Sign Up
Join The Club
