Update – Shell (& others) Sells Speculated Oil Cargoes

[Charles Randall]

Shell Sells Oil Cargoes, Phibro Tanker Leaves Orkney (Update2)
By Alexander Kwiatkowski
     Jan. 27, 2009 (Bloomberg) — Royal Dutch Shell Plc sold more than
1 million barrels 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 two 600,000-barrel cargoes of North Sea Forties
crude for delivery in mid-February at Scapa Flow near Scotlands
Orkney Islands to oil trader Vitol Group, the companies said.
The oil, 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 1st- and
12th-month crude narrows to about $12 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.

                        Leaving Scapa Flow

     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 anchorage area 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.
     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.
     Speculation that OPEC supply cuts will reduce inventories
in the second quarter of this year is causing the contango to
narrow, Gareth Lewis-Davies, a London-based energy analyst at
Dresdner Kleinwort Group, said in a research note last week.
     As the contango decreases and freight costs rise, the
incentive to store crude on vessels is disappearing, he said.
     The cost of shipping a crude oil supertanker west across
the Atlantic has climbed about 20 percent since the beginning of
December to $2.25 a barrel today, according to Bloomberg data.

                    OPEC Supply Reductions

     The Organization of Petroleum Exporting Countries, which
supplies more than 40 percent of the worlds crude, agreed last
month to cut oil supply by a further 9 percent from January in
an attempt to support prices as demand slumps. The International
Energy Agency forecasts that oil demand will shrink for a second
year in 2009, the first back-to-back contractions since 1983.
     The Forties crude cargoes sold by Shell will be transferred
directly from the Oliva to one or more tankers hired by Vitol, a
process known as a ship-to-ship transfer. Scapa Flow, a natural
harbor where Germanys High Seas Fleet was scuttled in 1919, is
used for such transfers because of its deep water and shelter.
     Three vessels storing Forties remain at Scapa Flow,
according to information on the harbors 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.

[Charles Randall]

The Speculation rats are selling their stored tanker cargoes as the Crude Contango, freight & market that drove the gamble is disappearing.  Lets hope they dont get out of it unscathed. Putting the over 80 million barrels from 30 vessels back into the market (prior to gasoline season actually starting) is going to keep crude prices depressed longer & be real kick in the head for OPEC’s Venezuela, Iraq & Saudi’s not to mention the Russians……cannot see how that is bad thing for Refiners until product prices pick back up.
 
Since it sounds like Citigroup is going sell some of its vessels perhaps the freed funds (probably sourced back to some bailout bucks it got from bailout) can be used for doing its real job of releasing funding to loans …… like the one it holds on the LyondellBasel credit agreement so they dont have to stay in Chapter 11 because inventory prices fell & triggered a stupid lump sum payment. Nahhh that isn’t likely since neither the SEC, Congress or Bailout is overseeing them the way it was advertised.
Regards

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