Thursday, December 31, 2009

Idle and Full Oil Tankers Would Stretch for 43Km

Business Week reported on December 28 that if all the idle, but full, oil tankers were lined up, the length of the line would strectch for 43Km (26 miles), a fact which could signal a 25% drop 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".

The New York Post says that traders booked a record number of ships for storage in 2009, hoping to profit from longer-dated futures trading at a premium to contracts for immediate delivery. Phil Davis (the options guru who maintains a great real-time chat for traders) wrote an article yesterday that explains that buying oil and storing it in tankers "is the best way to influence oil prices as it creates a false demand for product (you buy it) and then creates a false impression of demand (you do not deliver it) by causing drawdowns in crude DESPITE steady production numbers".

We know that JPM was one of the companies buying the oil in the tankers. He calls what is going on extorsion.

"The tanker market has been defying gravity," said Martin Stopford, a London-based director at Clarkson Plc, the world's largest shipbroker. More than 50% of the ships are in European waters, with the rest spread out across Asia, the U.S. and West Africa.

"If tanker rates go up, everybody will get rid of ships," said Andreas Vergottis, Hong Kong-based research director at Tufton Oceanic Ltd., which manages the world's largest shipping hedge fund. "It's going to be a market that's worse than 2009."

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