* Stored volume was above 10 mln barrels three weeks ago
* Brent backwardation cuts incentive to store crude on ships
By Alex Lawler
LONDON, Sept 7 (Reuters) - The volume of global price benchmark North Sea crude being held in floating storage has declined sharply since mid-August, according to shipping data and trade sources, a sign that a long-awaited market rebalancing is gaining momentum.
Two supertankers being used to store North Sea crudes offshore the UK, Desimi and Gener8 Neptune, contain about 4 million barrels of oil, trade sources said. Three weeks ago, the total was closer to 10 million barrels.
The clearing of the crude to destinations including China and South Korea has been encouraged by a rise in the price of Brent crude for delivery soon relative to later supplies LCOc1-LCOc2, trade sources said, a feature known as backwardation.
“The whole market is tightening up,” said a North Sea trade source. “Crude inventories have been drawn down, and there is no direct economic incentive for floating storage.”
The North Sea is home to the dated Brent benchmark, which is underpinned by Forties crude and three other grades. A stronger North Sea price can affect the wider market, as Brent is used to price oil around the world and underpins the futures market.
Brent futures have moved back into their pre-Hurricane Harvey backwardation after concern of a significant drop in crude demand failed to materialise.
With the Brent market in backwardation, the economic gain from keeping the crude in floating storage is removed. South Korea and China are regular buyers of North Sea Forties crude when the arbitrage is open.
The volume of floating storage in the North Sea built up earlier this year amid a global crude glut and the price of oil being higher for future supplies, a feature known as contango.
There is usually some crude being stored on supertankers in the North Sea as a market is found for the oil, often in far-away destinations such as Asia. One source described the current volume of around 4 million barrels as “operational.” (Editing by Mark Potter)