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By Claire Milhench
LONDON Aug 20 Oil traders have begun fixing
tankers to take North Sea, West African and Arab crudes to South
Africa for storage, hoping for a repeat of the multi-million
dollar bonanza they reaped in 2008-2009.
Shipping fixtures show that in late July and August, BP
, Mercuria, Total and Chevron all booked
suezmaxes to deliver crude to South Africa, with traders saying
that a good number of these barrels will go into storage.
For example, Mercuria has booked the suezmax Genmar Harriet
G to take Ekofisk crude from Teesport to Saldanha Bay in South
Africa, departing around Aug. 28. The tanker is currently at
anchor off the northeast English coast.
Traders said this was likely to go into storage as South
Africa does not normally take Ekofisk. "Mercuria know how to
store barrels," one said.
Mercuria is also sending 130,000 tonnes from West Africa to
Saldhana Bay on the Nordic Sprinter, departing around Aug. 28,
shipping fixtures showed.
Saldanha Bay has a large oil storage terminal, with a
combined capacity of 45 million barrels. It is seen as an
attractive storage location as oil can easily move to either
Europe or Asia, depending on where demand first emerges.
"Logistically it is interesting because you have an option
on the East and the West," said Olivier Jakob, an oil analyst at
Petromatrix in Switzerland.
"It makes sense to go down there right now. It shows there
is enough of a contango to start playing around with assets. We
are at the start of the stock-building process."
Traders agreed, with one pointing out Saldanha Bay was a
popular choice for storage in 2008-2009. Then, a "supercontango"
market structure developed that also allowed traders to make
money by storing crude on tankers.
"A lot of cargoes are going into Saldanha Bay now for
storage - that's where 20-30 million barrels went in 2008-2009
when things went into supercontango," the trader said.
Contango describes a situation where oil is available for
sale in the prompt market at a discount to oil for delivery at
Traders have also booked tankers to take West African and
Arab crudes to Durban in South Africa, where Vopak operates a
tank farm for oil storage.
"It won't be only Ekofisk that is stored, there will be some
West African grades too," another trader said. "There is a large
storage potential and the grade premiums are so low. It makes
sense in the current market to store West African barrels."
These shipments are the first sign that oil prices have
deteriorated to such a level that storage now makes economic
sense for some traders, although floating storage is still seen
as unworkable given firm VLCC rates.
Over the summer a glut of crude oil has built up in the
Atlantic Basin due to weak refinery demand in Europe and Asia.
This has driven prices for physical crudes to multi-year lows,
and made the ICE Brent futures curve flip from
backwardation to contango at the front end.
The October contract is currently at a discount of 71 cents
to November's contract, November is at a discount of 49 cents to
December, and so on until April 2015.
The spread between the December 2014 and December 2015
contracts has also tested a contango structure, with Jakob
saying it was at its weakest since 2010. "If the Brent curve for
the second half of 2015 starts to move into a contango then the
storage options will start to be maximised," Jakob added.
Traders doubt that demand will pick up sufficiently in the
third quarter to bring an end to the contango, with some even
saying demand will be worse, as refineries will undertake
(Reporting by Claire Milhench, editing by David Evans)