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Update2 – (BN) Speculators Morgan Stanley/Citigroup Seek Supertanker store Crude

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This topic contains 7 replies, has 3 voices, and was last updated by  Charles Randall 13 years, 10 months ago.

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  • #3229

    Charles Randall

    Morgan Stanley Said to Seek Supertanker to Store Oil (Update2)

    By Alaric Nightingale and Todd Zeranski
         Jan. 15, 2009 (Bloomberg)
    Morgan Stanley is seeking a
    supertanker to store crude oil, joining Citigroup Inc. and Royal
    Dutch Shell Plc in trying to profit from higher prices later in
    the year, four shipbrokers said.
         The bank has yet to find a suitable vessel, said one of the
    brokers, all of whom asked not to be identified because the
    information is private. Carlos Melville, a spokesman for Morgan
    Stanley in London, declined to comment.
         Theres a lot of people looking for storage, Denis
    Petropoulos, London-based head of tankers at Braemar Shipping
    Services Plc, the worlds second-largest publicly traded
    said by phone.
         Banks and commodity traders are seeking new ways to make
    money after the Standard & Poors 500 Index fell by the most
    since 1937 last year and crude oil prices dropped more than $100
    a barrel from their peak. Companies including Koch Industries
    Inc. and BP Plc are hoarding enough crude at sea to supply the
    world for almost a day.
         Frontline Ltd., the worlds biggest owner of supertankers,
    yesterday said about 80 million barrels of crude oil are being
    stored in tankers, the most in 20 years. A purchaser could buy
    oil now, keep it for months at sea and fetch better prices by
    selling oil futures that are higher than the spot price.
         The so-called contango pricing structure has been caused by
    excess oil supply as demand slows and speculation that output
    cuts by the Organization of Petroleum Exporting Countries will
    reduce the glut later this year.

                             Tanks Filling Up

         Slumping U.S. oil demand means tanks are filling at Cushing,
    Oklahoma, the pricing point for the benchmark West Texas
    Intermediate grade. Futures contracts indicate WTI will gain an
    average of about $2.15 a barrel a month
    until December.
         Supertanker storage deals are being done at about $75,000 a
    day, according to Petropoulos. Assuming the ship has a 2 million-
    barrel cargo, that works out at $1.12 a barrel over a 30-day
    period. Traders also need to pay financing and insurance costs.
         Phibro LLC, Citigroups commodities trading unit, has the
    carrier Ice Transporter stationed off north Scotland
    , according
    to people familiar with the matter. Shell, Europes largest oil
    company, has booked the supertankers Leander and Eliza.
         Oil traders hired two more ships to store North Sea crude
    off Scotlands Orkney Islands. The 2 million-barrel supertanker
    Luxembourg is scheduled to arrive at Scapa Flow on Jan. 21 while
    the 600,000-barrel transporter Atlantic Galaxy is already there
    said Captain William Sclater, operations manager at the port.

                                Oil Grades

         The easiest types of oil to buy for the trade are likely to
    be either WTI or the North Sea grades Brent, Forties, Oseberg or
    Ekofisk. Thats because they are the ones used to settle the
    most-traded futures contracts.
         Other oils, such as those from the Middle East and Africa,
    are usually bought and sold at prices related to the main
    European and U.S. grades. Because those prices fluctuate, it
    means traders assume an extra risk by hoarding them.
         Morgan Stanley owns half of Heidmar Inc., which operates
    smaller oil tankers. Heidmar hasnt had demand for its tankers to
    store oil, probably because they arent the largest supertankers
    that investors need for the contango trade,
    Tim Brennan, the
    companys chief executive officer, said by phone Jan. 8.

  • #6342

    Charles Randall

    Here is update on the Commodity traders buying crude & storing on supertankers taking advantage of contango where future prices beat the current spot market price. <See previous post Jan 9, 2009 Oil Traders seek +10 Supertankers & is under post Venezuela OPEC crude cuts.> 
    It looks like Morgan Stanley, Citigroup (Phibro), commodity traders & Koch, Shell oil traders have joined the feeding frenzy and the total crude stored in ships is now ~80 MM Bbl the most in 20 years.
    The article mentions WTI as one crudes buy for the trade but WTI is traded in domestic US Cushing hubb & never exported so it is doubtful anything more than paper hedge with another crude linked to it trade occurs, probably same for Brent since less than 20 cargoes a month are ever exported (one reasons the two shallow traded cargo volume crudes are not really indicators to be used for industry benchmarks on spot market).
    As minimum these type crude players are going to drive up freight cost, crude futures & spot market prices without adding anything of market value back into the oil industry. These are the exact type of folks that drove crude to $147/Bbl on speculative trades and collapsed the market because these prices were so unconnected to fundamentals. 
    Since Stockmarket and Congress only make noise about blocking these folks from speculating oil – the industry needs to find way to stop this removal of profit from commodity trading that has no assets at risk in the industry. However, this trade is almost solid since they have taken positions on loaded physical barrels & placed future hedges that guarantee a margin …. the only hope might be that current futures price gain of $2.15/Bbl-month until December would drop below their Demurrage contract rates of $1.15/Bbl-month or extend longer period than traders planned and eat some profits. 

  • #6339

    Joshua Lege

    i hate to say it, due to being in the industry and would like to see oil stabilize but, i hope this play eats there lunch and they stop messing with oil, at least for a while.

  • #6338


    I think high oil and gas prices started us down the tough financial road we are on now. Maybe if they loose their shirts the speculation will stop.

  • #6328


    Is there that much excess tanker capacity that some can be tied up for months as floating tank farms?

  • #6326

    Charles Randall

    Supertanker capacity has actually decreased because of all the single hulled vessels that were forced out of operation. But the new double hull replacements were larger & faster so some of difference in vessel numbers was countered. The market seemed tight enough before demand collapse that PDVSA/Chavez had fleet built for moving the heavy crude into China to minimized the freight exposure (crude was backed out by US past partners like ExxonMobil & ect). And freight market is tight enough that it reacts to supply & demand volume changes rather quickly  – market should notice a stablization to increase in prices as result of this speculators scheme.
    Somehow these guys seem live under lucky stars & all the reduced demand and crude / product oversupply has put a lot of slack & empty vessels back into the system.  All the producers keep cutting back on volume trying to get prices to flatten out or rise – the thing that neither they or Speculators seem to understand yet is this is a PRODUCT demand driven reduction not CRUDE supply driven cycle and until economy corrects they are going to continue to play catch up on cutbacks and prices are going to stay in the tank. <Market dipped below $33/Bbl Friday>.

  • #6321

    Charles Randall

    Oil Traders May Miss Boat as Contango Shrinks: Chart of the Day

    By Alexander Kwiatkowski and Alaric Nightingale
         Jan. 22, 2009 (Bloomberg)
    Oil companies and banks may have lost
    the chance of profiting from storing crude at sea, a trade that
    tied up almost a day of global demand for the commodity
         Companies including Citigroup Inc.s Phibro LLC, Royal Dutch
    Shell Plc and BP Plc have stored oil on tankers as the so-called
    contango, a market where buyers pay more for supplies later in
    the year than now, allowed them to profit from hoarding crude.
         With a wider spread, traders could buy oil for immediate
    delivery, sell futures and pocket the difference as long as it
    was greater than storage, insurance and finance costs. The CHART
    OF THE DAY shows a narrowing difference between European crude
    for delivery now and December futures, the red line, and higher
    freight rates, the blue line.
         The opportunities are disappearing, said Ehsan Ul-Haq,
    head of research at oil market consultant JBC Energy GmbH in
    Vienna. Freight rates have been rising. It is becoming
    difficult to store crude on tankers.

         Traders are storing as many as 80 million barrels at sea,
    seeking to profit from the contango, Frontline Ltd., the largest
    owner of supertankers, said last week.
    The contango is likely to
    narrow further as the Organization of Petroleum Exporting
    Countries cuts supply, Ul-Haq said.

  • #6320

    Charles Randall

    No worries “mates” – look like speculators missed boat on contango that is sinking!
    And I am glad to see that door closing, but since contracts closed 1/20 on cheap current / higher priced futures, this  was expected.  I hope Freight boys did their usual indexing to market for demurage rates so these guys get fried burned on some margins as futures market continue sink as well. (I wasnt able to get chart they mention but one lead journalist @ Bloomberg sent me his spread chart that showed the delta dropping from ~$6-8/Bbl spread in Dec08 down to todays less ~$2/Bbl for Jan09 so far.)
    Really ticks me off that Citigroup is part of this speculation ….. who got bailout money to help real business folks like the loans to LyondellBasel and wont extend a revolver type credit agreement…..but  instead go gamble/speculate like this in area they have no business being in. Just another example of bad oversight & why unsupervised bailout funds are a joke/bad investment.

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