Increased Oil Storage Plays: Analysis
During the last few days, various articles in the oil and shipping press have hinted at the possibility that renewed contango in the oil markets could lead to increased storage plays after several Suezmaxes were fixed for discharge in Saldanha Bay, South Africa, say Poten & Partners in the latest 'Tanker Opinions'.
While South Africa has several refineries that run on imported crude oil, the origin of the crudes (North Sea and the Caribbean), as well as the reported discharge port, seems to point to storage rather than refining.
The oil companies that have refining operations in South Africa include Chevron, Engen/Petronas, BP, Shell, Total and Sasol. These companies are the most prolific charterers into South Africa and as such typically source their crude from West Africa and the Arabian Gulf.
Cargoes from other load areas, such as Argentina, Colombia and the North Sea are brought in by trading companies and are mostly delivered into storage.
During the last five years, the market share of trading companies in the spot crude trade to South Africa has varied widely. During the years that oil storage was highly profitable – mainly 2009 and 2010 – oil traders controlled some 25% of the reported spot cargoes into South Africa. The market share of traders has declined in recent years, according to reported spot market fixtures. In 2013, Poten’s fixture database showed no reported fixtures by traders.
South Africa has ample onshore storage facilities, notably in Saldanha Bay on the country’s south-western coast, located about 65 miles northwest of Cape Town. Saldanha Bay’s six in- ground concrete tanks can hold a combined 45 million barrels - equivalent to the capacity of 45 Suezmaxes or 22 VLCCs.
Other than the sheer size of the facility and its accessibility by larger tankers, oil traders’ key attraction to Saldanha Bay is its geography. Located at the tip of Africa, it is conveniently nestled in between the Atlantic and Pacific Oceans. Oil stored at this location can be just as easily sold in Eastern as well as Western markets. From a shipping perspective, it is worth noting that the area has been prone to delays in the past.
In recent weeks, Brent spot prices have fallen to 13-month lows. Yesterday’s reported price of $100.67 per barrel is almost $15.00 below the price of Brent only two months ago. As the future prices have not moved as much, the market moved into contango at the front end.
During the period of “Supercontango” in 2008 and 2009, it was estimated that more than 20 million barrels of crude oil were stored in Saldanha Bay. A few Suezmax fixtures from traders to South Africa do “not a trend make” and the oil market contango is not (yet) steep enough to warrant using tankers for floating storage, especially if there still appears to be ample onshore storage capacity available.
While this could certainly change in the near future, the spot prices of crude are under pressure due to ample supply and anemic demand and worldwide geopolitical tensions and other possible crisis could easily flare up to disrupt oil flows and push prices higher in the future
Source: Poten & Partners