Stored oil keeps lid on cash crude diffs: traders

HOUSTON (Reuters) - The availability of crude oil stored on tankers at sea appears to be holding down U.S. cash crude differentials, industry sources said on Friday.

Shuttle tanker traffic has increased between tankers too large to enter U.S. ports and Gulf Coast refineries, suggesting some oil is moving into the onshore distribution network, tanker operators said.

"There are a couple of deals that came off this week, I guess due to the recent run-up in prices." said a lighterer, who transfers oil from big ships at sea to smaller ones.

Key cash grade Light Louisiana Sweet has bounced between 50 cents and $2 a barrel over West Texas Intermediate in recent weeks. Normally, it sells at +$4 or more.

"The presence of floating cargoes probably caps the grades," a trader said.

Oil has been stored on tankers since the futures market went into steep "contango," with front-month oil cheaper than back-month, and traders started buying low to sell high later.

Now WTI futures are above $50 a barrel after hitting the low $30s, it's a harder call whether to keep oil stored and owners are probably selling off carefully, analysts said.

"If you have a lot of storage, it may be time to start moving it," said Tom Bentz, oil analyst at BNP Paribas (BAP_pq.L) Commodity Futures Inc.

"The good traders who have barrels on the water will do well. The ones waiting to get higher prices might not," a trader said.

"It's not a flood," a tanker operator said of the increased traffic between supertankers offshore and refineries onshore.

As much as 80 million barrels is stored at sea, much of it within easy sail of the U.S. refining center on the Gulf Coast, according to some estimates.

It would make sense not to dump all your stored oil at once because the future of the economy, oil prices and refining margins is unclear, analysts said.

After all, the futures market is still contangoed and some are betting the wide spread between front and back months will return. A flood of oil also would depress prices.

Meanwhile, tanker day rates - $29,000 now compared to $119,000 last summer - remain depressed, holding down storage costs, said George Los, an analyst at Charles R. Weber Co Inc.

"Normally, there's a correlation between oil prices and tanker rates," Los said. "Right now, demand is not up as much as crude prices actually are."

(Editing by Lisa Shumaker)