Stockpiling of crude boosts orders for ships

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Stockpiling of crude boosts orders for ships

Barnes, a 20-year old very large crude carrier (VLCC) built by Korean shipbuiler Daewoo Shipbuilding and Marine Engineering weighing 298,000 deadweight tonnage (DWT) was delivered to Singaporean shipping company Ocean Tanker in October last year. The giant ship isn’t going anywhere: Ocean Tanker bought it for the sole purpose of storing crude oil.

Hin Leong Group, which owns the shipping company, has its own crude storage facility. But it’s filling up as the group stockpiles cheap oil.

Around the same time, Vitol, a Dutch commodity trading company, started stockpiling Nigerian crude oil. It too decided to store it on a second-hand VLCC, the Front Ariake, floating off South African.

Companies around the world are taking advantage of the crashing prices of oil to stockpile supplies - especially in case prices rebound in the near future. They are turning to the world’s shipbuilders, including Korea’s, to sell them what will be floating storage tanks.

Since West Texas Intermediate (WTI) crude reached $106.91 per barrel in June 2014, oil prices have been falling sharply. WTI traded between $37 and $60 last year.

On Jan. 8, a barrel of WTI was trading at $33.16. Commodity traders have been stockpiling crude since the mid 2014 as they are hoping to profit when crude prices rise again.

But the prices refuse to rise, and now storage spaces around the globe have have reached their limits, according to an analysis by the investment bank Barclays.

This is leading to increased sales of second-hand crude vessels to store the stockpiled oil.

According to international shipping market analyst Clarkson Research, some 80 second-hand VLCCs were sold in 2014, which is the largest number of VLCCs of any age bought in a single year over the last 10 years.

Emmanuel Ibe Kachikwu, president of the Organization of Petroleum Exporting Countries (OPEC), said recently major oil companies including PDVSA, Petrobas, Royal Dutch Shell and Glencore all have VLCCs floating around the Caribbean as storage facilities for their excess crude oil.

But there aren’t enough second-hand VLCCs and oil traders have started to place orders for new VLCCs. Clarkson’s study shows that new orders for VLCCs doubled from 33 in 2014 to 66 last year. That’s the biggest number of orders for new crude carriers in a single year since 2008.

“There were many cases in which commodity traders purchased crude carriers that were no longer in use as storage facilities or reused second-hand crude carriers as storage facilities in 2014,” said an official in the Korean shipbuilding industry, who requested anonymity. “But as the number of crude carriers was insufficient, orders for new carriers have gone up.”

But the impact on the struggling Korean shipbuilding industry is limited.

“VLCCs on average are worth roughly 100 billion won per vessel,” said Chun Jae-cheon, an analyst at Daishin Securities. “Considering that the insolvency of major Korean shipbuilders amounts to several trillion won, [the effect of the new orders] is very miniscule.”


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