The dark secrets of the trillion-dollar oil trade

[IndianaGreen]

The dark secrets of the trillion-dollar oil trade

Tankers full of oil its owners don't want to sell. Shady deals with brutal regimes. Vast profits. Pollution scandals. Cahal Milmo investigates a very murky business

Saturday, 26 September 2009

With a combined capacity for 313,000 tonnes of oil, the Delta Ios and the NS Burgas supertankers were launched two months ago to criss-cross the globe in search of trade. Instead, the vast vessels were to be found yesterday lying idle off the coast of Singapore after their owners were paid by two of the world's richest and most secretive oil companies to turn them into floating petrochemical warehouses.

At first glance, the decision by Trafigura Group and Vitol Holding BV to charter the newly built ships at an estimated cost of £47,000 a day to do nothing for up to four months in South-east Asia while laden with cargos of diesel worth at least £77m per vessel makes little economic sense.

When this is combined with the fact that the Delta Ios and the NS Burgas are just two ships in an enormous fleet of tankers which are currently being paid about £80m a month by independent oil traders like Trafigura and Vitol, as well as giants such as Shell, to stay anchored around the globe with anything between 50 and 150 million barrels of redundant crude on board, it seem that the ruthless barons of black gold must be losing money as fast as they can make it.

Far from it. The phenomenon of "floating storage", which has been brought about by a huge over-supply of global tanker capacity and unusual market conditions, is just one example of the multitude of ways in which a small group of private, mostly Swiss-based companies have become adept at turning vast profits from the closed and often murky world of independent oil trading. A glut of oil caused by the recession means that crude available for immediate purchase is currently cheaper than that bought on longer-term or "future" contracts – a practice known as "contango". The result is that independent traders have been rushing to buy the cheaper "spot" oil and storing it wherever they can – namely in under-employed tanker fleets – in anticipation of a sharp rise in price as the global economy begins to recover. The resulting profit can be anything between 15 and 20 per cent – tens of millions of dollars – even after the cost of hiring a tanker is deducted.

It is a situation which prompted one senior oil company executive to declare that the spring and summer of 2009 represented "blessed times for trading". Another oil trader told The Independent: "Contango has been a real boon. The independents have become very adept at buying up tanker capacity as cheaply as possible, sitting on the stock and selling it on via arbitrage. They've been as slick as you like."

http://www.independent.co.uk/news/world/africa/the-dark-secrets-of-the-trilliondollar-oil-trade-1793503.html

[yurbud]

1. I can't believe there's not more interest in this--it's critical to everything going on right now

[IndianaGreen]

2. It does explain the wild market fluctuations in the price of gasoline

that had little to do with oil production prices.

[Joanne98]

3. Yep!