GENEVA — With oil prices dropping 60 percent since June, analysts are saying one of the keys to surviving and thriving amid the carnage in global markets is having a place to store the stuff.
The global supply glut is being stoked by producers in the United States pumping more shale crude and OPEC’s resistance to calls for production cuts. So far this month, as the 28-company STOXX 600 Oil & Gas index fell 4.9 percent, shares of Rotterdam, Netherlands-based Royal Vopak NV, the world’s largest independent storage-tank operator, have surged 15 percent.
“We don’t know specifically about occupancy rates but we hear from companies that inquiries for tank storage are growing,” said Ronald Backers, adviser for business intelligence at the Port of Rotterdam. Europe’s largest port has crude oil tank storage of 85.6 million barrels.
Refiners, tank firms and traders who invested in oil storage capacity are benefiting as the slump in crude to below $45 a barrel deepened what’s called contango, a relatively rare situation where prices for oil delivery later this year are higher than current prices. Vitol Group, Mercuria Energy Group Ltd. and Gunvor Group Ltd. are among the commodity houses poised to profit by storing oil and petroleum products to sell in the future.
“There is significant storage demand from traders wanting to cash in on that specific opportunity,” said Martijn den Drijver, an analyst at SNS Securities in Amsterdam.
Mercuria, the fourth-largest independent oil trader, owns about 40 million barrels of storage in locations that include Texas, South Africa, China, Belgium and the Netherlands, according to its website. The firm is looking primarily at its land-based storage facilities to play the contango, said Matt Lauer, a spokesman for the company with major trading operations in Geneva. Mercuria hasn’t moved to secure any floating storage in tankers at sea.
“There is still risk involved,” Lauer said. “It would require only a 3 percent drop in the world’s oil production for this market to go away.’
The Organization of the Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.
”Over the coming weeks, traders will be reviewing their storage economics with a view to capitalizing on this market phenomenon which looks set to stick around for a while,” George Johnson, executive adviser in KPMG’s oil and gas practice, said in a Jan. 9 report.
Vitol, the world’s largest oil trader, owns or has stakes in companies that control about 68 million barrels of storage capacity, spokesman Fabian Gmuender said by phone from London. Gmuender declined to comment on Vitol’s oil-storage strategy.
Vitol founded and owns 50 percent of VTTI, a tanker and storage company operating in 11 countries across five continents with 50.3 million barrels of storage capacity, according to its website. In August, VTTI spun off part of its holdings and raised $423 million with a New York Stock Exchange listing for VTTI Energy Partners LP. The shares have gained 3.5 percent since their debut in August.
VTTI didn’t respond to an emailed request for comment.
While Gunvor is selling some of its Russian assets, the fifth-largest independent oil trader “has access to” more than 10 million barrels of storage capacity, according to the company’s website.
The contango and volatile oil markets helped Gunvor achieve a record profit of $621.2 million in 2009, according to a company bond prospectus.
Vopak owns 89 terminals with a total capacity of more than 195 million barrels. SNS’s den Drijver said 20 percent to 30 percent of the company’s capacity is dedicated to short-term contracts that would allow it to take advantage of the rising demand for spot storage. Vopak is also benefiting from the stable cash flow generated by its storage business as returns from other types of investment become less attractive, he said.
“The other key factor why Vopak is doing so well is the overall lower yields in the markets,” den Drijver said. “Everybody is looking for stable returns.”
Jefferies International Ltd. initiated a coverage of Vopak with a buy recommendation, David Kerstens, a London-based equity analyst, said in an emailed note Wednesday. The contango is expected to support a recovery in Vopak’s occupancy rates and lead to a more favorable pricing environment, he said.
Hans de Willigen, a spokesman for Vopak, said the company won’t comment on the impact of contango on its operations until after it reports full-year financial results Feb. 27.
“Vopak executes its strategy not on the basis of short-term product price developments but executes its strategy based on long-term global trends in the energy and chemicals markets,” de Willigen said.
As much as 90 percent of global oil storage capacity is “captive,” or controlled by major producers such as Royal Dutch Shell, BP or Chevron, according to den Drijver. That means only a small part of land-based oil storage is available for independent traders to lease to exploit the market contango, which has prevailed since July.
Some of the world’s largest oil traders have moved to secure floating storage in tankers to take advantage of the market contango. Vitol, Koch Industries, Shell and Trafigura Behee ave booked tankers that could be used to store crude at sea for one-year charters, according to reports from shipbrokers including Optima.
Oil companies are seeking supertankers to store 20 million barrels of crude, Odysseus Valatsas, chartering manager for Dynacom Tankers Management Ltd., said by email Jan. 9.
The last time the oil market moved into a significant contango during the global financial crisis of 2008 and 2009, traders stored 100 million barrels at sea, Frontline Ltd., a tanker owner, said at the time.
On Wednesday, Brent crude for August delivery traded at $53.11 a barrel in London, a premium of $7.01 compared with February contract prices. The gap between current prices and future delivery needs to be about $6.50 to cover hiring a ship and other costs associated with storing crude, according to E.A. Gibson Shipbrokers Ltd. in London.
Lower trade-financing costs, increased market volatility and the contango-generated opportunities to leverage their own storage capacity mean that fourth-quarter results for oil traders “are looking pretty good,” said Jan-Maarten Mulder, global head of commodities at ABN Amro Bank NV in Amsterdam “Traders are much more liquid now.”
Information for this article was contributed by Sherry Su, Alaric Nightingale and Naomi Christie of Bloomberg News.