Floating oil storage ending: Maersk

LONDON Thu May 27, 2010 3:00pm EDT

LONDON (Reuters) - The volume of crude oil held in floating storage globally is now at 25 tankers with 20 of those holding Iranian stocks, the chief executive of Maersk Tankers told the Reuters Global Energy Summit on Thursday.

Crude oil storage hit record highs last year helped by an oil market structure known as contango where the price of prompt oil trades at a discount to oil for future delivery.

In recent months, Iran has been also storing crude oil on tankers due to trade related reasons. Soren Skou, CEO of Maersk Tankers, a unit of Danish shipping and oil group A.P. Moller-Maersk (MAERSKb.CO), said 25 very large crude carriers (VLCCs) were being used to hold crude. A VLCC can holding up to 2 million barrels of oil.

"The data I have suggests that actually 20 out of the 25 are being used to store Iranian oil. It is not an exact science -- that is what our data suggests," he said.

"They (Iran) are not doing it as a play on the forward curve for oil as they don't want to sell at today's prices."

Trade sources have said the economics of Iranian crude have been undermined by the republic's aggressive policy in setting monthly official selling prices for its customers.

CONTANGO

Marco Dunand, chief executive and president of Mercuria Energy Trading told the energy summit earlier on Thursday up to 200 million barrels of oil were stored on tankers last year.

"Most of that has been cleared up now," he said. "Generally speaking the crude contango has narrowed to a level where it is sufficient to justify to have oil in tank but it doesn't justify having oil in ships."

Skou said 25 VLCCs storing crude was high in historical terms but was below levels seen in 2009.

"Last year we had maybe at some point more than 50 ships used for storage. So it has come down," he said.

Over the last year, price spreads between prompt crude oil and futures prices have narrowed significantly, ending an active trading play that had seen oil companies buy oil for immediate use and store it for long periods before selling it at a profit.

Commenting on the current spread between prompt and forward crude oil prices, Skou said: "That is not going to be able to pay for storage."

World economic recovery and rising oil demand this year have helped prospects for tanker markets but the sector still faces challenges due to deliveries of more ships ordered before the economic slowdown.

Skou estimated fleet growth this year at "upwards toward 10 percent."

"For the short term, 2010 is a mixed and difficult market," he said, adding that Maersk was "quite positive" about tanker prospects in 2011-2012 helped by slower fleet growth.

(Ikuko Kurahone in London and John Acher in Copenhagen; editing by Christopher Johnson)