New nav hazard: Parked tankers?

[marshmat]

This from the Toronto Star today. It looks like a few commodity speculators are chartering VLCCs for a few months, loading the tanks to the brim, and paying the crew to sit at sea and watch movies for a few months until the oil prices pick up again. This isn't exactly a new strategy, but it seems there are a lot more speculators trying to pull it off this time:

Originally Posted by http://www.thestar.com/Business/article/563455

Canny traders stow cheap oil at sea
Crude stored in tankers to cash in on next year's contract delivery prices
Jan 08, 2009 04:30 AM
Tyler Hamilton
Energy Reporter

For sale: two million barrels of offshore oil. No drilling required.
General expectations for a rebound in oil demand during the second half of the year have opened the door for traders to play a high-stakes game of arbitrage.
They're chartering massive vessels known as supertankers in growing numbers to capitalize on unusually large spreads between current oil prices and prices being paid for future deliveries.
For example, oil for December 2009 delivery is priced $15 (U.S.) a barrel above current levels.
To capitalize on this, the traders are stockpiling huge volumes of oil at today's prices, while locking in a profit by contracting to make future deliveries at richer prices.
Their customers are willing to pay future premiums based on expectations that oil's supply-and-demand picture will eventually tighten as the economy regains health.
Oil prices have been rebounding in recent weeks, but they were clobbered yesterday as renewed fears of a glut surfaced. Crude prices for delivery next month fell 12 per cent, the largest drop in seven years, after a U.S. report showed an unexpectedly big jump in supply.
But stowing crude at sea is "exactly what we'd expect to happen if people today think the price is too low," said Joseph Doucet, a professor of energy policy at the University of Alberta.
He said traders renting tankers for arbitrage purposes are taking a chance, but there's nothing illegal about stockpiling. "What you're not allowed to do is collude with another party to influence prices."
A barrel of sweet crude for February delivery plunged to $42.63 (U.S.) on the New York Mercantile Exchange yesterday, after the report from the U.S. Energy Information Administration showed commercial crude inventories last week increased by 6.68 million barrels.
Still, the prevailing economics have traders excited by an opportunity called "contango" – a situation when a non-perishable commodity such as oil gets more expensive as deliveries extend into the future.
Based on yesterday's closing price, buyers of oil are prepared to pay $47.39 a barrel for March delivery, $54.41 a barrel for July delivery and finally $59.49 a barrel for delivery in January 2010.
Analysts say the opportunity to buy oil at less than $43 and sell it in the futures market for 40 per cent more, for delivery a year from now, is too profitable to resist.
It's just one of many ways traders play the market, and part of the reason why it's so difficult to get an accurate handle on the mysterious and often volatile movement of day-to-day oil prices. "If I could do that, I'd be on the beach someplace," joked Doucet.
Frontline Ltd., one of the world's largest owners of supertankers, revealed yesterday that oil traders have tried to charter as many as 10 vessels. That's on top of about 25 supertankers reportedly already reserved for storage purposes.
The big tankers, if stood on end, would be as tall as the 102-storey Empire State Building in New York.
"The carriers hold about 2 million barrels of crude and traders are seeking to lease the ships for three to nine months," wrote Addison Armstrong, director of research at Stamford, Conn.-based Tradition Energy, in a research note.
Even including storage, insurance and other costs, the potential payoff is generous. Traders can also take advantage of bargain charter rates prevailing for supertankers.
The practice of physically storing oil at sea isn't new but often stirs up controversy, particularly when pump prices climb and commodity speculators attract anger.
It was reported last month that the U.S. Commodity Futures Trading Commission is investigating energy traders who store oil in tankers as part of a larger study of wild volatility in the market.
With files from Star wire services

[Meanz Beanz]

Why are they "speculators" ? Shell is buying oil because its being sold cheaper than they can produce it in some regions... this is a fire sale driven by credit issues... its not the real cost of oil. Buying and storing it is merely prudent at these levels!

[eponodyne]

Originally Posted by Meanz Beanz

Why are they "speculators" ? Shell is buying oil because its being sold cheaper than they can produce it in some regions... this is a fire sale driven by credit issues... its not the real cost of oil. Buying and storing it is merely prudent at these levels!

If somebody told me he had doen that, I would knock him off his barstool and I tell ya what, Jack, they would have to hit me with a fire extinguisher to the head to get me to stop. Anybody who can afford to do that does not need to **** the rest of us just so he can get richer.

Pardon my French, but *******.

[masalai]

It is a simple matter of mathematics and opportunity - the oil from the well-head was UNDERPRICED and the futures contracts just in time for delivery were VERY attractive so pre-sell to the future and charter the mobile fuel supply and buy on spot.... - deliver for a guaranteed profit - If you had the readies, I am sure you would do exactly the same - the wanking speculators just set up the opportunity by going the wrong way with paper and computer screens in their glass & plastic towers of fantasy.....

[Meanz Beanz]

Originally Posted by eponodyne

If somebody told me he had doen that, I would knock him off his barstool and I tell ya what, Jack, they would have to hit me with a fire extinguisher to the head to get me to stop. Anybody who can afford to do that does not need to **** the rest of us just so he can get richer.

Pardon my French, but *******.

I think you need to think about what is happening here again.

[eponodyne]

Nah. In a circumstance like that, if ya think about it, you'll never throw that first punch. Sometimes it's important to operate on instinct.

They are hoarding a commodity every bit as valuable and necessary as wheat.

[Meanz Beanz]

Hoarding.... no really you don't get it do you?

[eponodyne]

Put all the fancy names on it you want; rationalize that "they're just out to make money," and I still won't budge an inch. These people are tying up the supply of badly-needed oil by parking ships?!?!? That means that while the vessel is sitting idle, it's effectively out of service. It can't drop its cargo and haul more oil

So *******s profit and the rest of us suffer. I don't care if it's strictly speaking "Legal," It's immoral as hell and I stand by my words.

[Jimbo1490]

Some people are perfectly *OK* when market forces drive prices downward, even below profitability, as happened for quite a few years during the 80's all the way to 2004-about 15 years total. But if market forces drive prices up, these SAME PEOPLE get angry and full of self-righteous indignation, labeling the oil companies/speculators/traders etc as 'immoral'. The hypocrisy of this stance seems to elude them, as is based solely on a very ugly human emotion; JEALOUSY

In the end, if some choose to 'hoard' oil awaiting the next price peak, such 'hoarding' will be on the whole beneficial, since more oil will be made available during the price peak period than would be available if the oil were not stockpiled. Furthermore, the price 'trough' is the result of among other things, falling demand. Yet this falling demand is itself somewhat mitigated by the stockpiling, which creates a demand for the commodity which might not otherwise exist during the 'trough' period.

In the end, stockpiling tends to help stabilize, rather than inflate the commodity price.

Jimbo

[Meanz Beanz]

Originally Posted by eponodyne

Put all the fancy names on it you want; rationalize that "they're just out to make money," and I still won't budge an inch. These people are tying up the supply of badly-needed oil by parking ships?!?!? That means that while the vessel is sitting idle, it's effectively out of service. It can't drop its cargo and haul more oil

So *******s profit and the rest of us suffer. I don't care if it's strictly speaking "Legal," It's immoral as hell and I stand by my words.

I think you really need to read a little more and educate yourself.

[marshmat]

MB,

You've posted four times in this thread, once to describe the stockpiling of oil as a prudent move, and three times to tell Eponodyne that he doesn't get it and needs to read more.

Given the current situation on the commodity futures markets, I agree with you that stockpiling oil for use later in the year would seem to make financial sense, if you're in that buisness. (That doesn't mean that I trust Wall Street speculators to do the stockpiling.) But I think that if you are going to espouse this view so vehemently, then in the spirit of open discussion you ought to elaborate on what factors led you to this conclusion. Accusing other forum members of "not getting it" is not an appropriate way to begin a discussion.

[masalai]

Prolly something similar to my answer in #4.... The markets are behaving in a manner that can only be defined as "nuckin futs" and if you can see a profit (OPPORTUNITY) that can have the risk removed by using some of the herd's silly positions then do it, and then the herd heard and followed and may be too late and get caught on the wrong side of speculation again (GREED) - - - when the market has gone all illogical then careful observation identifies good deals and the "wall street herd" follow - but often not quick enough to profit from the gossip..... by the time they have accessed the money/credit to do the deal - don't shoot the cart if the horse rears up....

[Meanz Beanz]

I'm past yelling about it now... it will become evident enough to the great unwashed soon enough.

[Meanz Beanz]

Every price is determined at the intersection of two markets. The market for the good and the market for the money used to price the good. We have a dislocation in the later that is disrupting the former... all in all this is damaging many markets with good fundamentals. This is a "money market" or credit event, it will wash out... this also is a great example of why money needs to be stable and not the constantly inflating toilet paper that the great unwashed have been educated to trust. The market players are merely reacting to the fundamentals of the oil markets as they see them... speculators buy futures with no intent to deliver or supply... oil men fill ships full of oil and shut down rigs because the paper price has fallen below their costs, they do it to survive... and its kinda good for us that they do survive for tomorrow we need oil as well. Anyway... $3x oil has ensured $3xx oil will be here much sooner than it would have been otherwise, thats the great pity. Meanwhile the ignorant, bar brawling, energy entitled masses bay for the blood of the people that supply this much needed commodity, kinda like a teenager abusing the parents that feed and shelter them. We have a Magpie here that rears young every year... once they get to that stage the father beats the crap out of the kids and sends them off into the real world with his beak firmly poking their butts. The masses are about to feel the beak...

[Meanz Beanz]

Now back to trite one liners for mass consumption...