Some super tankers are being booked to store crude for up to three years—potentially the longest ever duration for floating storage—as traders seek to profit from hoarding oil to cope with the current oil demand and supply shocks.

Sources said two VLCCs, NS Lemos and Kyklades, had been placed on subjects for a time charter of up to three years for a daily rate of $48,000.

This was the longest time charter seen on the spot tanker markets in a number of years, they said.

The race to secure floating storage has picked up significantly in recent weeks, with up to 40 VLCCs and 20 Suezmaxes already placed on long-term chartering, according to S&P Global Platts estimates.

This totals almost 100 million barrels of crude as the oil market is facing a severe glut due to both supply and demand shocks caused by the oil price war and the coronavirus pandemic.

This will be on top of Iranian and Venezuelan barrels which are already in floating storage, these producers having found it tough to sell crude in the face of stringent US secondary sanctions.

Iran’s oil tankers are now holding almost 60 million barrels of oil at sea, the highest since early January 2016, while Venezuela's floating storage is estimated to be around 20 million barrels, Platts estimates showed.

The global tanker fleet can theoretically store 3 billion barrels but realistically 300 million-500 million barrels is available as the current market crisis has led to a surge in freight rates, according to analysts at shipbroker Poten & Partners.

Rates surge

Freight rates and storage costs have ballooned as the market faces the prospect of more oil just as demand destruction due to the spread of COVID-19 escalates.

Storage costs have almost tripled in the past two weeks, solidly supported by a stronger contango market structure.

Freight rates for these storage fixtures have ranged anywhere between $30,000-$90,000/day, according to several shipping and trading sources.

These tankers have been leased for durations ranging from a couple of months to three years. Three to six months is the most popular length for storing options, sources said.

Vessel locations for these tankers include the UK, Northwest Europe, the US, the Caribbean, Singapore and South Korea.

Earlier in the week, Euronav, which owns a fleet of 67 tankers, said some of its ships had already been booked for up to six to eight months at daily rates of between $70,000 and $90,000.

"These are very serious rates and it [floating storage] will also be beneficial for all the companies with exposure to the spot market, because it will restrict vessel supply," Hugo De Stoop, CEO of Euronav, said during the Capital Link International Forum Webinar. "[Land-based crude storage] will be filled up very soon in the next 30-60 days," he added.

One shipping source said older tankers were being preferred because there was no point in taking a ship with a scrubber, or an economic vessel, given that fuel prices are so low.

In a contango market, the forward price of oil is above the prompt price, inferring weak prompt demand and growing oversupply, encouraging storage.

Contango is normally considered a key indicator of a depressed oil market and oil traders have to hoard oil on land or on ships to cut risks.