Iran adds floating oil storage, contango weakens

Petrol pump.jpgIran has begun storing crude oil offshore again, according to Bloomberg, as demand in its major market, Japan, enters a seasonal slowdown. It has 6mbd on ships in the Persian Gulf (equal to 19% of current storage for the WTI contract at Cushing in the USA). Another 2 ships also seem to be being used for storage off Malta and Benin.

Meanwhile, Morgan Stanley (MS) have confirmed the blog’s suspicion last week that traders might start to bring more offshore crude onshore, as the contango narrowed. MS suggest as much as 25% of floating storage might now be coming ashore. This was no doubt partly responsible for the dramatic 8% fall in crude prices towards the end of the week.

The contango reflects buyers’ willingness to speculate on higher prices in future months. But the future price has to be high enough to cover the costs of storage, and the time value of money. As of today, the trade looks unattractive, with March futures contracts selling at $74bbl, and August at just $76bbl. Thus the blog continues to suspect that prices could easily move lower, if more traders decide to cash in their current profits. As Petromatrix comment, US stocks are now 15mb above last year’s high levels, whilst demand is down, and yet oil prices have doubled.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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