The price of carrying unwanted oil in open seas skyrocketed. This is an ongoing situation that will likely not go away soon
That’s right, one tanker.
Not a fleet of oil tankers.
Secure funds for one, now!
That’s because the going price for storing oil on tankers can go anywhere from $200k to $300k a day.
OK that’s still far off from Apple’s $1bn a day in revenues or Amazon’s $638 million per day in sales, but remember that’s only one ship, not a global operation with thousands of staff, hundreds of warehouses and nightmarish supply chain networks.
One ship, one cargo (oil), and one destination (idle or going around in circles in the ocean).
Most oil tanker prices tend to run from $10 to $20 million, and the ships run the gamut in terms of their capacity. The ideal ship for this plan needs to hit a balance of affordability and ample capacity, given the current uncertainties in the oil market.
For the price and capacity, the best deal available now is a 274 metre-long Suezmax crude oil tanker for $17 million, according to Horizonship.com. At revenues of $8-9 million per month, you will get your invested money back in 2 months’ time.
How did we get here?
The price of West Texas Intermediate, was down almost 18% at just under $14.99 per barrel when European markets opened on Monday. The price of Brent crude, the international benchmark, sank too, before both seemed to recover, with the front-month contracts settling at $13.78 for wti and $20.37 for Brent on April 22nd.
The losses were exacerbated by the pending expiration of the May futures contract which caused WTI to crash 300%, falling into negative territory, as low as -$40, for the first time in history on Monday. The space needed to store excess supply is running short, which is part of what led to the negative oil price on Monday.
Brent then followed WTI down with its own 20% crash. The June contract, however, only dropped around 10% to $22 a barrel. And Brent crude, the world benchmark, fell just 5% to $26.50 a barrel.
But things could change quickly for June oil Futures as the glut and oil shipments continue to grow.
Faced with a glut of oil that's clogging up storage facilities, OPEC members agreed to slash global production by 10% earlier this month, the largest cut to output ever agreed, but still not enough.
Jameel Ahmad, Global Head of Market Research and Currency Strategy at FXTM said recently that “There is a tremendous oversupply in the market and simply nowhere left for storage.”
“The International Energy Agency (IEA) project that demand for crude can drop this month by 29 million barrels per day, significantly more than the historic OPEC+ agreement where producers have agreed to cut production by nearly 10 million barrels per day from May.”
The price of finding a place to put oil has soared.
The New York Times reports that more and more massive tankers at sea are being used simply to hold the oil, as much as two million barrels per vessel.
Tankers are in demand, and their rates, as low as $25,000 a day in February, have ballooned to nearly $200,000 a day, even hitting almost $300,000 at one point, it said.
This is the case as demand for oil has plummeted by about 1/3rd a result of global lockdowns aimed at curbing the spread of the coronavirus.
“At the same time, Saudi Arabia and its allies have ramped up output, as part of a price war with Russia,” said the NY Times.
A tanker now heading from the Middle East to China will earn on average about $178,000 a day compared with $15,000 a year ago, according to Clarksons, a ship brokerage.
There are 1.2 billion barrels of oil floating on seas.
Analysts say that 10 to 15% of the world’s very large crude carriers are now being used for storage, and that the number is growing rapidly.