Oil Tanker Demand Lifted by Unwanted Crude Storage

By Alaric Nightingale

Nov. 14 (Bloomberg) -- Oil tanker demand is being buoyed by traders seeking to store unwanted crude, potentially bolstering hire rates that have plunged 71 percent since July.

Frontline Ltd., the largest owner of supertankers, got about 10 enquiries from oil companies seeking vessels for storage this week, Jens Martin Jensen, interim chief executive officer of the management unit, said by phone today. Royal Dutch Shell Plc, Europe's largest oil company, booked the carrier Leander, Paris- based shipbroker Barry Rogliano Salles said this week.

Iran, the second-largest member of the Organization of Petroleum Exporting Countries, idled as many as 15 of its biggest ships in May to store crude. That contributed to three consecutive months of higher rental rates.

``That's definitely positive for the market,'' Anders Karlsen, an Oslo-based analyst at Nordea Securities who recommends investors buy Frontline shares, said by phone. ``It will have the same impact as last time; it doesn't matter if they are in Iran or wherever.''

Demand for tankers as storage ``encouraged bidding'' in tanker derivative contracts betting on the future cost of shipping oil, said Ben Goggin, a broker of the contracts at SSY Futures Ltd., a unit of the world's second-largest shipbroker.

Oil prices have plunged 61 percent since reaching a record price of $147.27 a barrel in July as slower global economic growth sapped demand. The International Monetary Fund last week warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

North Sea Premium

The slump has prompted oil futures to move into contango, with near-term prices cheaper than those further into the future. That creates an incentive for traders to use ships for storage.

North Sea January cargoes are trading at a premium of about $2.20 a barrel to December shipments, according to PVM Oil Associates Ltd. A VLCC would cost about 90 cents to $1 a barrel a month to hire for storage, according to data yesterday from shipbroker Galbraith's Ltd.

The International Energy Agency, an adviser to 28 nations, cut its global oil demand forecast by the most in 12 years yesterday. The five-member Bloomberg Tanker Index, led by Hamilton, Bermuda-based Frontline, has dropped 59 percent from its peak in May.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net;