Handful of supertankers holding oil as contango play fades

[SINGAPORE] Only a few of the supertankers still chartered by traders for storage are filled with crude because a play to hold cheap oil and sell it later has lost momentum after prices recovered from six-year lows more quickly than expected.

Traders had been looking for profit from storing oil and selling it later at higher prices in the so-called contango play. But the recovery in crude prices has rendered storing oil onboard tankers unprofitable, senior traders from Glencore and Statoil have said.

More than 30 tankers had been put on long-term charter at the start of this year to play the contango, but vessels still earmarked for storage have dropped to 12. Of these, only one Ultra Large Crude Carrier (ULCC) and four Very Large Crude Carriers (VLCCs) are filled with oil, according to Thomson Reuters shipping data, shipbrokers and traders.

"What is not so easy to grasp is how many ships will actually store (oil). We will see in Q2," said Robert Hvide Macleod, chief executive of Norway's Frontline Management, one of the world's largest tanker operators.

Most of the tankers booked on annual charters are now delivering crude as usual, traders and shipbrokers said.

Some traders who had earlier made the contango play have already taken profit on some of their stored oil and are looking for the next opportunity to store more.

Traders and analysts expect a supply overhang to cause prices to drop sharply again in the second quarter before recovering in the second half this year.

"Everybody agrees we're going to recover in the second half but it's just a matter of what happens in the second quarter," said Tony Nunan, a risk manager at Mitsubishi Corp.

Brent crude fell 60 per cent from above US$115 a barrel in June last year to a nearly six-year low in January at just over US$45 a barrel. It has since recovered to around US$60 as US oil output growth slows and Middle East and North Africa supply disruptions threaten.

REUTERS