Oil Diplomacy Editor
LOS ANGELES, Dec. 16 -- Abundant oil supplies in a decreasing market and dropping tanker freight rates have combined to form an increase in floating storage, said the International Energy Agency in its monthly oil market report. Tanker operator Frontline Ltd. said 20-25 oil supertankers, representing 50 million bbl of oil storage capacity have been hired for floating storage in recent weeks.
Jens Martin Jensen, acting managing director and chief executive of Frontline, said very large crude carriers (VLCCs) have been booked within the last 2 months to store oil for future delivery.
Jensen said the increased activity in tanker markets is due to the oil market's contango structure that gives producers an incentive to store crude in order to capture higher returns in the future.
According to Jensen, market participants were looking to the Organization of Petroleum Exporting Countries' Dec. 17 meeting in Algeria to gauge how long companies would continue to store the crude.
IEA said the monthly cost of storage in VLCCs is about 90¢/bbl plus an additional 30¢/bbl or more to cover capital costs, insurance, and other expenses.
The agency said storage vessels are in the Gulf of Mexico, the North Sea, India, and Malaysia. Royal Dutch Shell PLC, BP PLC, and Koch Industries Inc. reportedly are companies that have made booked VLCC storage in recent weeks.
Meanwhile, Frontline and Teekay Corp. announced an agreement to commercially combine their Suezmax vessels within the Gemini pool, a Suezmax tanker pool serving customers around the globe.
Frontline's spot Suezmax vessels will bring the total number of vessels in the Gemini pool to 36. The expanded pool will be available Jan. 1, 2009.
Gemini has opened an office in Oslo to manage the larger fleet and establish a chartering presence in Europe to supplement its Stamford, Conn., operations.
"For Frontline, we expect to improve the utilization on our fleet and to reduce the cost basis by entering a large pool," Frontline said.
Konig & Cie and Hyundai Merchant Marine are also Gemini pool partners.
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