Oil traders who have been keeping as much as 100 million barrels of crude on tankers to profit from forward prices are likely to start selling the cargoes as the incentive to store wanes, consultant JBC Energy said On Tuesday.
BP Plc, Royal Dutch Shell Plc and Hess Corp. are among the oil companies whose first-quarter earnings were boosted by storing crude in tankers. By anchoring laden vessels offshore, companies were able to profit from the so-called contango, where crude contracts for delivery in the future are more expensive than near-term supply.
“Oil should soon start to return to the market as contango structures appear to be narrowing, especially in the US,” Vienna-based JBC said in an e-mailed research note On Tuesday. JBC estimates that as of end-April, 40 million barrels were being stored in the US Gulf Coast while as many as 24 million barrels were anchored off the UK and West Africa.
Shell, Europe’s largest oil company, sought to sell a cargo of North Sea Forties oil on May 1 which it has been storing in a supertanker off the coast of the UK since November. Shell said it failed to attract a buyer for the crude which is on board the 2-million-barrel Leander.
Traders are storing 100 million barrels of oil at sea, enough to supply Europe for five days, Frontline Ltd, the world’s largest supertanker operator, said April 23. Provided they can secure storage and financing for less than the difference between near-term and future prices, they can lock in a profit by buying prompt oil and selling it forward.
West Texas Intermediate crude for July delivery was $1.66 a barrel more expensive than June oil on the New York Mercantile Exchange in London On Tuesday, compared with $1.71 on May 4.
The bigger the difference, the greater the incentive to store oil. The spread has averaged $2.87 this year.
The opportunity to benefit from the contango trade is unlikely to per-sist into subsequent quarters as the price difference narrows, BP’s Chief Financial Officer Byron Grote said last week.
“We’d actually expect it probably to be drawn off in the course of the second quarter, since we’ve now seen the steep contango structure that we had in the first quarter return to a flatter structure,” he said.
