The banksters are still storing oil in tankers to keep the price up

[Joanne98]

Dec. 28 (Bloomberg) -- A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.

The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers. That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.

Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.

“The tanker market has been defying gravity,” said Martin Stopford, a London-based director at Clarkson Plc, the world’s largest shipbroker. Stopford has covered shipping since 1971.

More than half of the ships are in European waters, with the rest spread out across Asia, the U.S. and West Africa. Lined up end to end, they would stretch for about 26 miles.

Storing Crude

Traders are storing enough crude at sea to supply the 27- nation European Union for more than three days. Royal Dutch Shell Plc, Europe’s biggest oil company; London-based BP Plc; JPMorgan Chase & Co.; and Morgan Stanley were among those that sought vessels for storage.

By the end of November, 168 tankers were storing crude or refined products, according to data from Simpson, Spence & Young Ltd., the world’s second-largest shipbroker. Their combined carrying capacity of 23.8 million deadweight tons is equal to 5.9 percent of the tanker fleet. That exceeds the previous record, set in 1981, when Japanese refiners used tankers with a combined 19.5 million deadweight tons.

The storage helped prop up tanker rates this year as the Organization of Petroleum Exporting Countries, accounting for 40 percent of global oil supply, made the deepest-ever output cuts in response to the worst global recession since World War II.

The storage trade is profitable so long as the spread between energy contracts exceeds ship rental, insurance and financing costs. A year ago, the spread between the first and sixth Brent crude-oil contracts traded on the London-based ICE Futures Europe exchange was 23 percent. Now, it’s 4.6 percent.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a14LJ33Y.yng&pos=7

Jamie Dimon is going to testify becore Congress pretty soon. Do you think we can get Code Pink to sit behind him with a sign that's says STOP STORING OIL?

[dmallind]

1. so a) nothing to do with banks and b) nothing to do with price of oil

Simply a report on the failed hedging strategies (which by definition fail a great deal of the time - if it were a certainty it would not be hedging) of tanker companies.

[Joanne98]

2. Then why does it say this..........

Traders are storing enough crude at sea to supply the 27- nation European Union for more than three days.

and this.....

JPMorgan Chase & Co.; and Morgan Stanley were among those that sought vessels for storage.


Did you even read it?

I really don't give a fuck if they're smart enough to hedge 5 things at the same time. I'm sure they'll short Frontline before they dump the tankers. It's still market manipulation of a very important commodity and they shouldn't be able to do it!

If people want to horde oil then release it at key times to keep the price low like Clinton did in the 90's that's okay because it's doing something good but as we can see the banksters would rather die than do anything good for society. And that's the difference between the government and the private sector. One's good and one's bad!

I know that's sounds simple but it's a sure bet!

[FBaggins]

3. Because any time oil is purchased for the future...

...traders are involved. And those traders work somewhere.

That isn't he same thing as the banks themselves getting involved.

Also... it's less true to say that they're propping prices up than to say that they're making purchases because current prices are lower than they expect them to be in the future.

[Joanne98]

5. LOL Just because the banks are renting the tankers doesn't mean they're involved!

I don't see why the traders should get blamed. They're not pulling oil off the market, they're just betting on it.

And sure prices are lower than in the future. But they would be even more lower if they'd stop storing oil!

And they shouldn't be able to keep the costs of tankers up either. If the rents of the tankers went down then oil would be less expensive to ship and it would go down too.

It's all bullshit to me!

[FBaggins]

6. The banks aren't... their customers are.

There is a difference whether you see it or not.

If I buy two million barrels of oil and pay a tanker company to store it for me, you'll never see my name involved... but you will see the broker who handled the transaction.

That isn't the same thing as the broker's company renting the tanker of buying the oil with their own funds.

And sure prices are lower than in the future. But they would be even more lower if they'd stop storing oil!

So? If you had a tank in your garage that could hold 500 gallons of gasoline and you could buy it today for $1/gal and knew it would cost twice as much next summer... wouldn't you do the same thing? Would you be manipulating the markets if you did so?

Just as importantly, they can be wrong about oil prices in the future and lose their shirts in the bargain.

[Joanne98]

8. Now that's interesting. The customers....Who are these customers?

Can we get their names? Are they people, are they hedge funds? Maybe they're Republicans trying to keep the economy from recovering so Obama will look bad next year!

They can be wrong and lose their shirts.... Unless they buy insurance then they would make a bundle losing their shirts!


So? If you had a tank in your garage that could hold 500 gallons of gasoline and you could buy it today for $1/gal and knew it would cost twice as much next summer... wouldn't you do the same thing? Would you be manipulating the markets if you did so?


That wouldn't be a problem if they actually used the oil themselves. But of course they don't. This argument gets used to stop derivative reform too. The farmers and other USERS of the commodity have a reason to hedge. The others just turn it into a casino.

[FBaggins]

11. Why?

Is it your thought that the morality of the action depends on who is taking the action? If it's democrats doing it then it's ok?

"They" no doubt includes people of all political stripes as well as hedge funds AND the commodity trading segments of banks or other financial firms.

That wouldn't be a problem if they actually used the oil themselves. But of course they don't.

So you're saying that it would be ok for you to impact the market by hoarding 500 gallons of gas at the lower price... but when gas returns to $2/gal it would be immoral for you to sell it to others?


Ceteris paribus, this should have the effect of stabilizing oil prices, not artificially propping them up. This is because there comes a day when the oil has to be taken off of those tankers. Imagine that the day comes when a hurricane strikes an oil producing area and there is a sudden shortage. You would expect prices to spike upwards, but now that spike will be less severe because there are supplies just sitting offshore (hopefully not in the hurricane). The artificially higher "demand" now necessarily creates an artificially lower demand in the future... which helps mute price spikes.

[Joanne98]

12. The government has reserves for emergencies....

And no I wouldn't think it's was okay if the Dems were doing it.

[FBaggins]

15. Those reserves don't have the same effect

Because they require government intervention and must be replaced in the end anyway.

They don't really serve to boost perceived supply so much as they serve as a temporary loan to refiners when they can't get to existing supplies.

In some ways, the effect is really the opposite of offshore storage... Instead of shifting future demand forward, it shifts supply forward.

[unabelladonna]

7. these are the same crooks

who will be holding "carbon credits" if we enact cap and trade. just another way for them to make money.

[Joanne98]

9. True. Which is why I'm against it. It's just another casino!

[dmallind]

10. I read it, and I understood it.

Nothing at all to do with oil prices other than a failed attempt to take advantage of them. A three day supply for one major market does not drive up global commodity prices.

[girl gone mad]

13. Don't believe your lying eyes, Joanne!

Pay no attention to the man behind the curtain. Strangers on the internet have spoken. He isn't there.

[Joanne98]

4. Add Citigroup to the list. This is from January 2009

Citigroup Profits From Contango With Ship Off Orkney

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 $58.97 a barrel, 30 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.

Ice Transporter

Ice Transporter, a double-hulled vessel, is capable of carrying 1 million barrels. The ship has anchored at Scapa Flow in the Orkney Islands since Dec. 24 and has an option to remain there for three months, Captain William Sclater, operations manager at the port, said in a telephone interview yesterday.

While Phibro used to be a “huge” hirer of tankers in the 1990s, it hasn’t booked vessels for “many years,” said Per Mansson, managing director of shipbroker Nor Ocean Stockholm AB.

Citigroup spokesman Jeffrey French declined to comment when contacted by e-mail.

BP is also storing Forties crude at Scapa Flow, the port manager said. The 2 million-barrel supertanker Eagle Vienna arrived there Dec. 14. “We have had a few enquiries,” to store oil at the harbor, Sclater said. “Two have matured so far.”

The Hague-based Shell, Europe’s largest oil company, chartered the supertanker Leander in November with an option to store Forties crude, according to Paris-based shipbroker Barry Rogliano Salles.

The vessel arrived at Scotland’s Hound Point, the loading port for Forties, on Nov. 20, according to tracking data compiled by Bloomberg. The vessel has remained anchored at Lowestoft on the eastern coast of the U.K. since Nov. 28 and was last reported there at 6:31 a.m. local time today.

Cover Costs

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.

U.S. crude inventories rose 2.1 percent last week to the highest since May as fuel consumption dropped in the world’s largest oil consumer. The Organization of Petroleum Exporting Countries has agreed on record production cuts to drain surplus oil from the market and revive prices.

Brent crude oil for February settlement traded at $45.48 a barrel on ICE Futures Europe exchange today. Prices fell a record 51 percent last year as the world economic crisis caused the first annual drop in demand since 1983.

Citigroup Trading

Citigroup made $686 million from commodities trading in 2007, with most of the money generated by Phibro, according to the company’s annual report. In 2006, it made $487 million.

Phibro, formed as Philipp Brothers in 1901 to buy and sell commodities from aluminum to grain, began to concentrate on energy trading during the 1970s and has continued to do so as a unit of Citigroup.

The Westport, Connecticut-based company trades crude oil, refined oil products, natural gas and metals as well as over-the- counter derivatives tied to such products, and also makes “extensive use” of futures contracts, according to the company’s annual report.

Phibro became part of Citigroup in the 1998 merger between Citicorp and Travelers Group Inc. Travelers bought the commodities firm as part of its 1997 acquisition of the investment bank Salomon Inc.

Citigroup’s former chief executive officer, Sanford Weill, sought to sell Phibro in 1998 because its strengths “largely involve proprietary trading strategies.” The sale never occurred.

http://www.bloomberg.com/apps/news?p...nUE&refer=home

[Goldstein1984]

14. Manipulation of supply is about price control

I flew into Midland, Texas ate last year for a job interview. As the plane landed, I noticed that a huge number of the oil wells weren't pumping. I asked the potential employer about it. He said that the owners had become fond of $160/bbl oil, and they had shut in the wells when the price dropped below $90/bbl.

[pa28]

16. Oil inventories are still high and so are prices.

Floating storage and the false signal it creates in the market is one of the reasons.

Here is an interesting http://www.mi2g.com/cgi/mi2g/press/041209.php">piece explaining how cheap money is encouraging contango bets like this (as it's nearly zero risk) and how the result could be a sharp drop in oil prices next year if the expected rise in consumption fails to materialize.

[wuvuj]

17. Waiting.....

They are waiting for the spring-summer oil price run up?




$3.50 gas by next spring-summer?