Offshore Crude Oil Storage Trading and Making Record Profits in a Global Market Downturn
By Alex Meleshko
Faced with an unprecedented imbalance of supply and demand for crude oil, amid COVID-19 and the OPEC+ fallout, traders have found a way to make astounding profits in an otherwise rough global market scenario; by trading offshore crude oil storage on very large crude carriers (VLCCs). This is highly profitable in the current market because the crude oil market is in contango (futures prices are higher than spot prices) due to the current market oversupply. As a result, storing crude oil produced today to sell at a later date becomes incentivized, and storage space becomes more valuable. With oil supply suppressing spot prices, and global storage filling up fast, storage has arguably become one of the world’s hottest commodities. Onshore storage is typically much cheaper than offshore storage, however traders are increasingly seeking to store barrels offshore as space becomes increasingly scarce. VLCC time charter rates for floating storage jumped to as much as $120,000 per day by Monday, up from about $40,000 per day at the start of the month, according to a selection of unnamed major product shippers. While the lion’s share of the profits are being made out on the ocean, the intel to capitalize on these opportunities is found back on the beach.
Data such as rig activity, frac crew activity, prices and trading volumes of oilfield products like frac sand as well as well production profiles act as leading indicators for crude oil supply. It allows traders to do their own homework, stay ahead of the curve on supply side data, and capitalize on storage trading most effectively, rather than rely on export data, government or agency announcements that lag behind the market. In such a volatile market, trading oil storage is a once-in-a-lifetime low-risk, high reward opportunity, and it will be interesting to see how data will be used to maximize returns.