Analytics Vortexa

The recent dramatic drop in global crude prices and the widening contango structure on the forward curve is likely to see an uptick of crude in floating storage, with interest to store offshore already being actively registered. Until recently, crude in floating storage was supported by discharge delays around ports in China and rising flows into onshore tanks, following the coronavirus outbreak. However, demand to use VLCCs in floating storage is now lending further support to freight rates, amid the hefty rise Saudi and Russian crude exports expected in the coming weeks.

 

Global crude floating storage volumes up

Total crude and condensate observed in floating storage globally rose to around 70mn bl at the beginning of this week, having ticked up 15% week-on-week in the previous week. The rise is supported by the gradual increase in long-term storage (30 days +), as well as the noisier short-term indicator (7-30 days). Volumes began creeping up from February, boosted by vessels building up outside Chinese ports. After a hiatus of several years, the current outlook for plentiful and cheaper crude and the crude forward curve could make floating storage economical again. 

 

Daily Global Floating Storage (ex-Iran) in past 12 months (mn bl)

 

Asia tops list of storage locations

Asia is currently home to around 26mn bl of the global observed floating crude inventory as of 11 March. Of this, 40% is floating near China’s Jiangsu province. In the last week, five new tankers laden with around 5mn bbls of crude – from west Africa, the Mediterranean and Brazil - entered floating storage in China. Among them:

  • Unipec-chartered VLCC New Courage, laden with a co-load of Oguendjo and Gindungo west African crudes - these were originally headed for China’s Dongjiakou port. 
  • Petrobras-chartered VLCC Nissos Kythnos, which loaded crude from Gebig, Brazil in late January was also previously declaring its destination as Dongjiakou, but instead has been floating after arriving near China.

Preceding these, another five tankers comprising of two VLCCs, two Aframaxes and a Handymax – have been operating as floating storage in Jiangsu province for more than seven days.

 

Asia crude floating storage in past 12 months

 

Rising floating storage versus freight rates

An increase in tankers serving as floating storage will tighten the tonnage availability in the market, supporting higher dirty freight rates. A higher number of VLCCs that were taken offline in shipyards this month versus last is expected to further squeeze availability:

  • As of 1 March, 24 VLCCs with a total 7.4mn DWT capacity were in shipyards globally, up from 20 VLCCs with a total 6.2mn DWT capacity on 1 February.
  • Meanwhile, 23 VLCCs, 1 Suezmax and 2 Aframax tankers are being deployed as floating storage for 4.7mn mt of fuel oil/gasoil in Tanjung Pelepas, as of the the week beginning 9 March, according to Vortexa data. 

 

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