During the last few days, various articles in the oil and shipping press have hinted at the possibility that renewed contango in the oil markets could lead to increased storage plays after several Suezmaxes were fixed for discharge in Saldanha Bay, South Africa.

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Enter Tankers from Stage Left
During the last few days, various articles in the oil and shipping
press have hinted at the possibility that renewed contango in
the oil markets could lead to increased storage plays after
several Suezmaxes were fixed for discharge in Saldanha Bay,
South Africa.
While South Africa has several refineries that run on imported
crude oil, the origin of the crudes (North Sea and the
Caribbean), as well as the reported discharge port, seems to
point to storage rather than refining. The oil companies that
have refining operations in South Africa include Chevron,
Engen/Petronas, BP, Shell, Total and Sasol. These companies
are the most prolific charterers into South Africa and as such
typically source their crude from West Africa and the Arabian
Gulf. Cargoes from other load areas, such as Argentina,
Colombia and the North Sea are brought in by trading
companies and are mostly delivered into storage. During the
last five years, the market share of trading companies in the
spot crude trade to South Africa has varied widely. During the
years that oil storage was highly profitable – mainly 2009 and
2010 – oil traders controlled some 25% of the reported spot
cargoes into South Africa. As seen in the chart, the market
share of traders has declined in recent years, according to
reported spot market fixtures. In 2013, Poten’s fixture database
showed no reported fixtures by traders.
South Africa has ample onshore storage facilities, notably in
Saldanha Bay on the country’s south-western coast, located
about 65 miles northwest of Cape Town. Saldanha Bay’s six in-
ground concrete tanks can hold a combined 45 million barrels -
equivalent to the capacity of 45 Suezmaxes or 22 VLCCs.
Other than the sheer size of the facility and its accessibility by
larger tankers, oil traders’ key attraction to Saldanha Bay is its
geography. Located at the tip of Africa, it is conveniently
nestled in between the Atlantic and Pacific Oceans. Oil stored
at this location can be just as easily sold in Eastern as well as
Western markets. From a shipping perspective, it is worth
noting that the area has been prone to delays in the past.
August 22
2014
POTEN TANKER OPINION
HOUSTON / NEW YORK / LONDON / ATHENS / SINGAPORE / GUANGZHOU / PERTH
Poten Weekly Tanker Opinions are published by the Tanker Research & Consulting department at Poten & Partners. For feedback on this opinion, to receive this via email every week, or for information on
our services and research products, please send an email to tankerresearch@poten.com. Please visit our website at www.poten.com to contact our tanker brokers.
Fig. 1 Reported VLCC & Suezmax Fixtures into South Africa
In recent weeks, Brent spot prices have fallen to 13-month lows.
Yesterday’s reported price of $100.67 per barrel is almost
$15.00 below the price of Brent only two months ago. As the
future prices have not moved as much, the market moved into
contango at the front end.
During the period of “supercontango” in 2008 and 2009, it was
estimated that more than 20 million barrels of crude oil were
stored in Saldanha Bay. A few Suezmax fixtures from traders to
South Africa do “not a trend make” and the oil market contango
is not (yet) steep enough to warrant using tankers for floating
storage, especially if there still appears to be ample onshore
storage capacity available.
Fig. 2 Brent Future Contract Prices
Another Storage Play in the Bay?
Source: Poten
While this could certainly change in the near future, the spot prices of crude are
under pressure due to ample supply and anemic demand and worldwide
geopolitical tensions and other possible crisis could easily flare up to disrupt oil
flows and push prices higher in the future.