Thursday, January 8, 2009

Floating Arb-barges

By Alexander Kwiatkowski and Alaric Nightingale
Jan. 8 (Bloomberg)

Citigroup Inc.’s commodities-trading unit followed BP Plc and Royal Dutch Shell Plc in anchoring a full oil tanker offshore northern Scotland to profit from higher prices later this year.

Phibro LLC is keeping up to 1 million barrels of the North Sea Forties grade of oil in the Ice Transporter near the Orkney Islands, according to people familiar with the matter. Phibro is seeking to make money from contango, a market where buyers pay more for delivery later in the year than they do today.

Citigroup’s trade shows how the contango, caused by an inventory surplus onshore, is attracting more traders to hoard oil. Brent crude for January 2010 settlement sells for $59.68 a barrel, 32 percent above the contract for next month. Stockpiles surged as recession reduced demand, while forward prices remain higher on forecasts OPEC cuts will start to curb excess supply.

“We anticipate more ships to be chartered as storage,” Erik Jensen, an analyst at Lorentzen & Stemoco AS in Oslo, said by phone. “Anyone can do it, it’s no problem to charter a ship, it’s pretty much risk free to do so.”

Shell and BP, Europe’s largest oil companies, both have oil stored at sea near the U.K. Frontline Ltd., the world’s biggest operator of supertankers, said yesterday oil traders want to charter as many as 10 additional vessels to stockpile crude.

To profit from contango, oil companies and traders must be able to cover the cost of storing, insuring and financing the cargo. A supertanker would cost about 90 cents a barrel a month for storage, depending on the length of the rental, according to data last month from shipbroker Galbraith’s Ltd.

About 25 supertankers were already hired for storage, and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of Frontline’s management unit, said by phone yesterday. Traders are seeking to lease ships for three to nine months, he said.

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