Oil Stored at Sea Expands as OPEC Meets on Output Cut

By Alaric Nightingale

Dec. 16 (Bloomberg) -- Oil companies booked 25 supertankers to store crude, enough to supply France for almost a month, as OPEC discusses output cuts to shore up prices that have plunged 69 percent in five months.

The supertankers, equal to about 5 percent of the global fleet, can carry as much as 50 million barrels. The ships may not all be fully loaded, Jens Martin Jensen, interim chief executive officer of Frontline Ltd.’s management unit, said by phone today. The Bermuda-based company is the biggest supertanker owner.

Global demand for oil will shrink this year, for the first time since 1983, the International Energy Agency said last week. The Organization of Petroleum Exporting Countries, accounting for about 40 percent of world supply, should make a “sizable” cut when it meets tomorrow in Algeria, Secretary-General Abdalla el- Badri said yesterday.

“For OPEC, there’s too much oil in storage and to have it floating is also more problematic” because it can go anywhere in the world, Olivier Jakob, managing director of Petromatrix GmbH in Switzerland, said by phone. “OPEC cutting production is not good for shipowners because you will have less vessels being used.”

ACM Shipping Group Plc Chief Executive Officer Johnny Plumbe on Dec. 3 said as many as 12 supertankers were booked with options to use them as storage.

Hiring Tankers

Royal Dutch Shell Plc, Europe’s largest oil company, and Koch Industries Inc. are among those hiring tankers. West Texas Intermediate, a benchmark crude grade, for February delivery is trading at a premium of about $3, or 6.7 percent, to supply for January settlement. Oil companies and traders may be able to profit from storing the oil for a month, assuming shipping, insurance and financing costs are covered.

The use of supertankers for storage may also buoy the cost of hiring the ships. Rates on the benchmark Middle East to Japan route have slumped 68 percent this year and are 74 percent lower than a year ago.

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

Iran may be storing crude on ships again, Jensen said. Three of Iran’s supertankers, Noah, Dena and Manah, have been at or near the country’s Kharg Island loading facility since before December, according to AISLive ship-tracking data. The country uses some of its vessels to shuttle crude from Soroush to Kharg.

Market Availability

“It has a big impact on spot market availability of ships,” Henrik With, an analyst at DnB NOR Markets ASA in Oslo who recommends buying Frontline shares, said by e-mail today. Storage is one reason why owners have managed to maintain “highly profitable” rental rates at a time when world oil demand is dropping, he said.

Storage costs on tankers remain at about 90 cents a barrel a month depending on the length of the contract, Charlie Fowle, a director at London-based shipbroker Galbraith’s Ltd., said in an e-mailed note today. Twenty-five tankers used for storage would probably be the largest number for at least 20 years, Fowle said.

The global fleet of supertankers stands at 502 vessels, according to data from London-based Drewry Shipping Consultants Ltd. The ships have the ability to transport about 146 million metric tons, or about 1 billion barrels, of crude.

To contact the reporter on this story: Alaric Nightingale at anightingal1@bloomberg.net