Oil prices slip as floating storage comes onshore

Oil contango Sept09.jpgDestocking is now well underway in crude oil markets. This is focused on the vast amounts of floating storage that built up in H1.

According to a Financial Times analysis, April saw 56 ships being used for storage, versus a normal level of 5 – 7 vessels.

29 ships are still in use today, with c50-60 mbbls in store. But the price incentive for this storage has disappeared, with future month prices only c$5/bbl higher than spot. As the chart shows, this ‘contango’ had reached nearly $24/bbl earlier in the year, allowing traders plenty of margin to sell forward on a risk-free basis, as floating storage costs just 50-60c/bbl.

The first stage of the destocking process caused oil prices to stabilise around $70/bbl. Now, though, there are signs that the next phase could take prices lower, as a major increase in demand seems unlikely. As Petromatrix note, September’s US auto sales are likely to be the lowest of the year, now the scrappage scheme has ended.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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