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ANALYSIS: Global oil in floating storage rangebound amid backwardation, congestion
12th October 2021 10:42 GMT

The volume of crude and condensate being stored in oil tankers worldwide is flattening out after a mid-summer uptick as backwardation in crude markets continues and congestion at ports potentially inflates the apparent volumes in floating storage.

Global crude and condensate in floating storage amounted to 145.86 million barrels for the week beginning Oct. 4, according to data intelligence firm Kpler, down from 149.17 million barrels in the previous week.

The Kpler data, which estimates the volume of oil on tankers idled offshore for seven days or more, shows stock levels have seesawed within a range of 132.914-149.651 million barrels since the start of August. The trajectory has been a jagged increase since the last week of June 21, when 118.060 million on the week starting June 21 barrels were in floating storage, the Kpler data showed.

Before the COIVD-19 pandemic caused global oil demand to collapse in early 2020, floating volumes were at their lowest at 78.723 million barrels in the week starting Nov. 25, 2019.

Currently, the global oil market price structure is unsupportive to would-be stores of crude and condensate, however. S&P Global Platts assessed Dated Brent at $84.43/b Oct. 11, its highest in three years, and it has been assessed above $81/b each day since Oct. 4, while the structure has held in a steep but relatively stable backwardation in recent months.

In late European trading on Oct. 11, the front-month December ICE Brent futures contract was trading around 75 cents/b higher than January.

The physical forward curve was similar if not quite as steep, with Dated to Frontline swaps -– a derivative that links ICE Brent futures to Dated Brent – showing a slight contango in prompt months.

Even so, a calculated physical forward curve showed a backwardation of over $7/b in the year October 2021 to October 2022.

 

Not all storage is equal

Analysts at S&P Global Platts Analytics identify three types of floating storage. These are intentional storage -- a deliberate play in a contango market when the structure of the curve more than pays for costs associated with floating storage; forced or distressed storage -- when market dynamics mean leaving a liquid cargo on a vessel is the least-worst option for a short period; when a ship is waiting to discharge because of logistical issues -- this has often occurred in China.

Deliberately putting new volumes into floating storage in present market conditions, when oil is tight and the forward curve is backwardated, is not a profitable move and there is little incentive to store.

As such, many vessels that show up in data counts as floating storage are likely logistically related, Anthony Starkey, senior adviser for trader flow and modelling at Platts Analytics, said.

This was echoed by his colleague. “Where we could see some activity it is mainly due to port congestion, such as in China, or as sellers want to avoid distressed sales,” Andrew Scorer, freight analytics lead for shipping at Platts Analytics said.

 

Vessels waiting in China

Tankers waiting off the coast of China have had to contend with delays and this is putting them in the category of forced storage.

The average waiting time at Qingdao is one week, long enough to count as floating storage, while at Zhoushan and Rizhao a normal waiting time at present is 20 days as refineries are in no hurry to take crude, market sources said.

All ships currently calling at port in China are at the moment facing some sort of congestion, said Peter Sand, Bimco’s Copenhagen-based Chief Shipping Analyst.

This congestion is either in the form of floating 14-days quarantine due to the Corona pandemic or due to sub-optimal port operations, Sand said.

Operational delays are due to the cut in crude throughputs at refineries and this is leading to hold-ups in tankers discharging.

It has been widely expected that the latest batch of quotas for independent refineries would be allocated at the end of September, but it is still pending in early October, which has made it difficult for refineries to bring in their cargoes on time.


Bunkerworld .,
12th October 2021 10:42 GMT