How do market participants use oil tankers?

Discussion in 'Commodity Futures' started by Rickylee, Oct 7, 2018.

  1. Rickylee


    Hi All,

    I'm trying to understand the use of oil tankers in the market and how they are used by various market participants, specifically when stockpiling.

    I understand that Platts, and similar organizations, track oil tankers and release data to indicate the trade flows but it's the offshore storage (stockpiling) that interests me.

    I assume that this is done by speculative players in the market.....

    Any comment would be appreciated.

  2. Robert Morse

    Robert Morse Sponsor

    If you can buy Oil in the cash market,cover the storage costs and sell a futures contract at a higher price to include a proper profit, that would be once example.
  3. Rickylee


    Thanks for the reply Robert.

    Do you know where data, like that, can be monitored?

    Also, does that mean that the opposite would also be true i.e. If floating storage levels are at a minimum, then the market is in backwardation?
  4. Robert Morse

    Robert Morse Sponsor

    I'm sure the industry has a trade journal with data, but I do not know where to find that,
    If the futures market is in backwardation, there is no for storage from speculators. Floating storage levels go down and so do rates because it is worth more to just sell the inventory and unwind the short future.

    I'm not an expert on this.
    drm7 likes this.
  5. Rickylee


    Thanks Robert.
  6. You are only considering a small part of the equation for tanker use. In a backward market then location arb flows will dictate freight rates. IE if Saudi lowers differentials mid-summer and Asian gasoline demand is high and physical premiums are elevated then traders/producers/refiners will buy AG crude and ship to NEA with rates supported by the open refinery arb.

    Floating storage is on the higher end of the storage continuum, as it is generally more expensive then on-land storage that is connect to the system. So a contango market will fill on-land storage farms first before leaking into floating storage. We saw this in late 2014 / early 2015 when crude crashed, contango steepened, on-land storage filled across the globe and VLCC rates roofed.

    The optionality is also subject to location as storage in USGC in a tank or cavern might be more expensive than an idle 20 year old VLCC sitting in the Arab Gulf. More to this point: WTI is not Brent is not Dubai. So each US, NWE, AG index will dictate their localized activity.

    There's no hard answer to your question as storage is a dynamic and non-linear asset.
    Last edited: Nov 23, 2018
    Rickylee likes this.