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In latest sign of crude glut, ageing supertankers used to store unsold oil

Reuters  |  SINGAPORE 

By Keith Wallis and Henning Gloystein

(Reuters) - Traders are increasingly storing in ageing supertankers in Southeast as they grapple with a supply overhang that has left the system clogged with unneeded fuel despite an OPEC-led drive to cut production to prop up prices.

Around 10 very large crude carriers (VLCCs), all between 16 and 20 years old, have been chartered since the end of May to store crude for periods ranging from 30 days to around six months, brokers told Each VLCC can carry 2 million barrels of

These vessels are in addition to around 30 supertankers used for long-term around and Linggi, off the West coast of peninsula Malaysia.

One of the main drivers for storing in tankers is that crude prices for immediate delivery are cheaper than for future sale, a market condition known as contango.

Brent crude futures, the international benchmark for prices, have fallen by 13 percent since late May, to around $47 per barrel. Brent for delivery at the end of 2017 is $1.5 per barrel more expensive.

"Floating does seem ... viable assuming time charter rates of under $20,000 per day," said Rachel Yew, and tanker market analyst at Oceanfreightexchange.

Current rates to charter a five-year-old 300,000 DWT for one year are $27,000 per day, according to shipping services firm Clarkson. Rates for VLCCs at least a decade-old are much cheaper.

"It makes a lot of sense for a trader to pay $16,000-$19,000 per day to take an older VLCC for 30-90 days to store oil," said a Singapore-based supertanker broker, asking not to be identified.

The festering supply glut comes even as the Organization of the Petroleum Exporting Countries (OPEC) pushes to withhold production until the end of the first quarter of 2018.

WAITING FOR CHINA

Floating is an indicator of oversupply.

"Too much unsold is headed to Asia," said Oystein Berentsen, managing director for trading company Strong Petroleum.

A shortage of spare onshore in China, as well as an expectation that new Chinese crude import quotas for independent refineries will be announced soon, are also playing a role in putting crude into tanker in Southeast

"Once China's quota are released, you want to have close to China. Because onshore there is pretty full, the next easiest location is around and Malaysia," said one trader.

"This expectation of new Chinese orders also helps explain why future crude is more expensive than current crude. That's why we store it for later sale," he added.

(Reporting by Keith Wallis and Henning Gloystein; Editing by Joseph Radford)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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