Supertankers Being Used to Store Crude at Sea for Delivery When High Prices Return


Anyone who thinks the days of high oil prices are in the past should think about this:

Both oil traders and oil producers have recently begun using supertankers to store extra reserves of oil for delivery later this year.  Although prices are still relatively low right now (around $48 per barrel) oil futures for delivery later in the year are almost 30% higher.  As a result, investors see money to be made by purchasing oil today at a relatively low price, paying to store it at sea, with the plan of reselling it back into the market later in the year when the prices are substantially higher.

Frontline Ltd., which is the world’s biggest owner of supertankers, said oil traders have already chartered 25 vessels and may take as many as 10 more in order to store crude for future sales.  Traders are seeking to lease the supertankers for three to nine months.  Each barrel stored would cost approximately 90 cents a barrel per month for storage.

Not only are oil traders getting into the storage game, but Iran is using as many as 15 of its own vessels to store crude.  For them, this serves the double purpose of limiting the existing oil on the market (which helps increase prices) and giving themselves a large and easily accessible reservoir of crude to sell once the prices increase later in the year.

Despite the fact that players in the industry clearly expect higher oil prices to return this year, some Americans still don’t accept the fact that fundamental change is needed.  If we did, this ubiquitous Chrysler commercial would be falling on deaf ears.  Unfortunately, we may need to return to the “shock” of high prices to get out of the creeping complacency.

UPDATE: The price of oil dropped 12% on Wednesday, making the incentive for traders to buy and store oil even greater.

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  1. Actually the real reason for this is that the tank farms at all of the refineries are essentially full, and that is because demand stagnated.

    So there is nowhere else to put the crude.

    SCM always runs into problems whenever there is a dramatic change in demand — and when you have long lead times, inventory starts piling up.

    Profits are not typically made on any single sale, but rather on the continuous flow of the system.

    • Jerry C. Joyce says:

      I’m not sure that is accurate.

      Indeed, there is more oil than there is demand for at this price. But you can’t tell me that there is not a single entity in the world that could buy and store (or use) this excess oil if the price were lower.

      Instead, the traders, as the post notes, are buying it now as an investment to sell later. They believe they can make more money buying the oil now, and paying for the storage (which is also unusually cheap due to falling demand), and sell it later, than to just pay the futures price and wait for delivery.

      I do not believe the world’s governments, refineries, and other major oil consumers have run out of space to store oil.

      I’m sure the U.S. strategic reserve isn’t at capacity.

  2. bring back muscle cars, all of em !!

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