Oil traders demand ships to store crude before prices rebound

Oil traders are seeking to hire at least five more supertankers this month to hoard crude at sea, bringing the total amount being stored to enough to supply Britain for 35 days, according to the world’s largest operator of the vessels.

At least 25 supertankers are being used to store oil at sea, as traders and oil companies bet that prices are set to rebound this year, according to Jens Martin Jensen, temporary managing director and chief executive of Frontline, a Norwegian-listed shipping group that operates or leases more than 50 such vessels.

“It’s the strongest demand we have seen in many years,” he said. “We are having new inquiries every day. At least 25 vessels have already been booked and I would expect the number to reach at least 30 by the end of the month.”

Mr Jensen said that the vessels, each of which can carry about two million barrels of oil, had been leased by a range of groups. Royal Dutch Shell is thought to have hired at least four, BP has hired one, the Eagle Vienna, while Koch, an American company, has leased another.

“It’s a new situation,” a shipping broker at Barry Rogliano Salles, a Paris-based company, said. “There has been very strong demand for VLCCs over the last few weeks. It is speculation on the price of oil. They are just hoping that the prices will increase.”

The price of crude collapsed in the second half of last year as a broadening recession gripped some of the worlds largest economies, sapping demand, which fell last year for the first time since 1983, according to the International Energy Agency.

Crude has fallen by more than $100 per barrel from a record high of $147.27 per barrel in July 2008 to trade around $41 per barrel on Friday. Yet the forward market for oil is in what traders call a contango— in other words, it suggests that prices will rise later in the year. Crude oil for delivery in December stood at more than $61 per barrel last week.

The trend to store crude at sea has been given a boost by a steep decline in shipping rates. A supertanker now costs around $60,000 to $90,000 (£39,000 to £59,000) a day to lease, depending on the length of rental. This is well below the rates being charged last summer, according to one London shipping broker.