U.S. Oil Traders Storing W.African Crude

Posted by Joseph Keefe January 16, 2015

Glencore, Suncor, ENI, Vitol all booking tankers; U.S. crude oil stocks at highest ever level for time of year.

Traders are shipping West African crude to the United States to store the oil until prices recover, as the global glut forces them to source any tanks available and as seaborne cargoes are able to compete better on price with U.S. crude.

Oil firms including Swiss-based Glencore, Italian energy major ENI and Canada's biggest oil company Suncor have lined up ships to take at least 10 million barrels of West African crude to North America, ship brokers say, with freight bookings and tanker tracking also showing the moves.

The move reinvigorates a trade that had been largely shut off by the U.S. shale boom, as West African barrels that used to be imported to the United States were some of the first to be pushed out by soaring output in Texas and North Dakota.

While U.S. oil inventories are already near the highest ever level for this time of year, the United States has far more spare storage tank capacity available than Europe or Asia.

Refiners in the United States and Canada are also looking for cheaper barrels as U.S. benchmark West Texas Intermediate has roughly hit parity with international marker North Sea Brent after having traded at a discount to seaborne cargoes for over 4 years.

"There is so much storage capacity in the United States and so little in northern Europe that apparently the differential between Brent and WTI has gone," said Anthony Gurnee, chief executive of Ardmore Shipping Corp, which owns and operates a fleet of oil product tankers.

With spot oil prices down almost 60 percent since June to below $50 a barrel, and future contracts for delivery next year trading far higher, the incentive to store crude has risen.

While traders have already booked tankers to store at least 25 million barrels of oil at sea this week, land-based storage may be a more economical option for those who can find it.

According to industry sources and freight bookings seen by Reuters, at least 10 tankers are set to carry a total of 10 million barrels from West Africa to the United States, with some going to the U.S. Gulf Coast where much of the country's storage tank capacity lies.

The 1 million barrel Almi Galaxy suezmax tanker is shown in AIS tanker tracking on Reuters as sailing to the Louisiana Offshore Oil Terminal (LOOP), having been chartered by ENI to lift crude from the Cameroon port of Kribi.

"They're forcing all the crude on us," one U.S.-based trader said. "We have a lot of stock, but this (the Gulf Coast) is also the only place to push it."

Glencore's shipping arm ST Shipping has chartered 2 suezmax tankers capable of carrying 1 million barrels each, the Genmar Kara G and SKS Spey. Vitol, the world's largest independent oil trader, and refiner Tesoro are also looking at taking tankers to the U.S. Gulf.

REFINE OR STORE

Others are going to refineries on the East Coast, which generally process lighter, sweeter crude than their counterparts in the Gulf. Some may be used as alternatives to shale oil from North Dakota, which needs to be railed in on expensive trains.

Suncor has loaded two 1 million barrel cargoes from Nigeria this week, the Max Jacob and Amoureux, according to Reuters shipping data and information provided by brokers. In October the company unloaded some North Sea cargoes in Portland, Maine, before shipping them north to its refineries in Canada by pipeline.

There is also at least one cargo of oil from Azerbaijan, the 1 million barrel Nordic Freedom, listed as going to Portland Maine. It exited the Mediterranean at the start of this week.

Prior to the height of the U.S. shale boom, West African producers like Nigeria and Angola had been big suppliers, sending a total of almost 1 million barrels per day to the United States between 2010 and 2012.

But given that most crude from West Africa is of a similar quality to the light sweet crude produced in the U.S. shale boom, imports from Nigeria and Angola quickly collapsed, falling to an average of a little over 320,000 bpd last year, data from the U.S. Energy Information Administration shows.

The global oil glut has hit West African cargoes particularly hard, as they try to find new homes in Asia and Europe. Price differentials for Nigeria's largest export grade, Qua Iboe, fell to the lowest since 2005 this month.