Ships As Floating Storage for Crude Oil

By Douglas A. McIntyre Updated Apr 28, 4:42AM EDT · Published Jan 22, 10:22AM EST

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Ship_image_suez_max_2 We have all heard over and over and how many ships were essentially being used as temporary floating storage terminals for oil. But now there is at least some quantifiable data on just how much black gold is being held on the waterways. According to an article at Rigzone.com, some 80 million barrels of oil is floating around on the world’s oceans waiting for crude prices to rise. That is about one day’s worth of global demand.

The oil is on board very large crude carriers (VLCCs) that each holdabout 2 million barrels. Everyone’s day cost is very different, but afigure of about $75,000/day to lease has been used lately. The mathworks out to around $1.12/month/barrel. Of course day rates for "newfloating storage facilities" will fluctuate, so that is just a staticnumber based upon a snapshot.

Crude prices for June 2009 delivery have dropped to around $48/barrel,from more than $53/barrel last week. Crude is trading at around$43/barrel this morning.

As the spread narrows, it becomes less attractive to buy crude now andhold it for future delivery. The March contract for crude is alreadylower than the February contract.

Adding to downward pressure on future deliveries are the high rates ofcrude storage on land. The US Energy Information Agency released itsweekly report yesterday, and noted that commercial crude inventoriesincreased by 1.2 million barrels in the previous week to a total of326.6 million barrels. That doesn’t include the the 700 million barrelstucked away in the strategic petroleum reserve.

If forward delivery prices continue to drop, the current price willhave to drop, once more lowering pump prices. If there’s no place toput the crude, and there’s no increase in demand, where will pumpprices go? Below a $1/gallon?

Can OPEC do anything to halt this slide in crude prices? Not much,except cut its own throat by reducing production even further andfaster than it already is.

Paul Ausick
January 22, 2009

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.