A Chinese trading firm has booked the world’s largest super-tanker to store crude at sea, adding to a growing flotilla of vessels used for floating storage as benchmark oil prices slip below $100 a barrel.
Industry sources said Chinese firm Unipec, the marketing arm of Beijing-backed oil giant Sinopec, has booked the 3.2-million-barrel TI Europe, one of just a handful of Ultra Large Crude Carriers (ULCC) still in service. It is listed as the world’s largest ocean-going vessel by tonnage, and is as long as the Empire State building is tall at 380 metres.
The booking is the latest sign that soaring oil supplies and tumbling prices are prompting traders to store crude in volumes not seen since the financial crisis more than five years ago. Analysts estimate more than 50 million barrels of oil may already be placed in storage.
The move also demonstrates the growing clout of state-backed Chinese firms in international oil trading, with Unipec and PetroChina establishing sophisticated dealing desks in key hubs like London and Singapore in recent years. Unipec plans to ship cheap oil from Europe and store it off Singapore aboard the ULCC, trading sources said.
“It doesn’t surprise me,” said one oil trader in London on Monday.
“They have been buying everything in northwest Europe,” he added, referring to the large number of cargoes Unipec has bought since the start of this month of Russia’s main export crude, Urals.
Soaring output from the U.S. shale oil boom has depressed prices and is forcing other producers to discount their oil in a bid to hold on to market share.
While only very limited crude exports are allowed from the United States, higher domestic production has replaced many imports from West Africa, Europe and other regions. North Sea Brent crude oil futures, the international benchmark, have fallen by 15 percent since June.
The TI Europe was one of four ULCC vessels built for tanker pool operator Tankers International LLC at the beginning of the last decade, according to the website maritime-connector.com. Known originally as the ‘Fantastic Four’, two of the vessels have since been turned into full-time storage vessels.
The TI Europe is still also used for deliveries. On Monday it was sailing unladen off Singapore, according to AIS Live tanker tracking on Reuters.
Storing crude has reemerged as a trading play due to a significant shift in the oil market in the last few months. As weak demand and strong supplies have weighed on prices for delivery in the near future, contracts for later delivery have risen to a premium.
This market structure, known in the industry as contango, allows traders to lock-in profit by buying oil now and selling it forward for later delivery, as long as the costs of storage are low enough.
Energy Aspects, a London-based oil consultancy, said in a note on Monday that up to 50 million barrels of oil may already have been put in storage as part of the trading tactic.
Since late July shipping fixtures show that oil traders, including international majors like BP, Chevron and independent Swiss-based commodity traders like Mercuria, have been moving oil into a storage site in South Africa or into tankers off Asia.
South Africa’s 45-million-barrel Saldanha Bay storage terminal, a legacy of the Apartheid-era oil embargo on the country, is the preferred destination for many traders as it lets them flip barrels east or west as pockets of demand emerge.
“We estimate there is about 50 million barrels of oil in floating storage, split between Saldanha Bay and Asia, the highest level since the last peak during the 2008/09 contango,” Energy Aspects said.
“While there has been some fleeting Chinese buying, most of that has headed into floating storage (including some West African barrels).”
In 2009 as many as 200 million barrels of oil were put into storage as demand collapsed during the recession.
The consultancy said that may mean international oil prices continue to fall, a stance backed by many traders, who see little evidence of stronger demand as many refineries are about to start post-summer maintenance.
“Without a significant supply cut, this market could be in a downward spiral,” one New York-based trader said.