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Shell Sells Oil Cargo, Phibro Tanker Leaves as Contango Shrinks

Bloomberg

 

 

By Alexander Kwiatkowski

Jan. 27 (Bloomberg) — Royal Dutch Shell Plc sold a cargo of crude stored off the U.K. and a vessel hired by Citigroup Inc.’s Phibro LLC left its anchorage in Scotland for the U.S. as the incentive to keep oil in tankers disappears.

Shell sold 600,000 barrels of North Sea Forties crude for delivery in mid-February at Scapa Flow near Scotland’s Orkney Islands to oil trader Vitol Group yesterday, the companies said. The cargo, already on board the supertanker Oliva, has been anchored off the U.K. coast since at least December, according to Bloomberg vessel tracking data.

Oil companies and traders have stored as much as 80 million barrels of crude on tankers as the so-called contango, a market where buyers pay more for supplies later in the year than now, allowed them to profit from storing crude. The incentive to store oil on vessels is shrinking as the spread between first- and 12th month crude narrows to about $10 a barrel from $17 in early December.

“If the contango continues to flatten, then even the most optimistic of those companies storing crude will try to get rid of their oil,” said Ehsan Ul-Haq, head of research at oil market consultant JBC Energy GmbH in Vienna. Higher spot prices may encourage traders to release cargoes back into the market now rather than waiting, he said.

A second tanker hired by Phibro to store Forties near the Orkney Islands left for the U.S. Gulf last week, a port official said yesterday. The 1-million barrel Ice Transporter left Scapa Flow late Jan. 23, Captain William Sclater, harbor operations manager, said in an e-mail. The vessel arrived at the harbor on Dec. 24. Jeffrey French, a Citigroup spokesman, declined to comment.

Contango Profit

The contango allowed traders to profit by buying oil for immediate loading, keeping it for months at sea and selling futures at a higher price than the spot price. They could profit as long as the difference was greater than storage, insurance and finance costs.

As the contango decreases and freight costs rise, the incentive to store crude on vessels is disappearing, Gareth Lewis-Davies, a London-based energy analyst at Dresdner Kleinwort Group, said in a research note Jan. 23.

The cost of shipping a crude oil supertanker west across the Atlantic has climbed about 15 percent since the beginning of December to $2.17 a barrel, according to Bloomberg data.

Three vessels storing Forties remain at Scapa Flow, according to information on the harbor’s Web site. They include the Eagle Vienna, a supertanker hired by BP Plc.

Reported trades, bids and offers of North Sea oil typically occur during a “trading window” that ends daily at 4:30 p.m. London time. Platts, a unit of New York-based McGraw-Hill Cos, uses data from the window to make price assessments.

To contact the reporter on this story: Alexander Kwiatkowski in London at[email protected];

Last Updated: January 26, 2009 19:00 EST

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