Oil traders turn ‘bespoke tailors’ in offshore megastore

Bloomberg

The biggest oil traders feeling the squeeze in a world awash with crude are seeking an edge by offering tailor-made cargoes in an offshore megastore.
By selling bespoke from a fleet of ships anchored off Singapore and Malaysia,
the likes of Vitol, Trafigura Group, Glencore Plc and Gunvor Group are seeking to lure buyers who are becoming more demanding. With crude from the US to Africa and Europe stored in their tankers, the traders can mix and match oil of differing quality and characteristics to offer made-to-measure cargoes that meet their customers’ niche specifications.
As a glut that’s pummeled crude over the past three years persists and waning price volatility reduces opportunities to profit, traders are contending with increased competition and smaller margins. Now, they are leveraging their global network to source a variety of oils to be shipped to Southeast Asia on very large crude carriers. Then, the cargoes are divvied up, blended if needed, and transferred into smaller tankers to make customized packages.
“These floating vessels allow traders to sell cargoes in smaller parcels which can help when refineries are processing crude for the first time, or when local jetties cannot take in larger vessels,” said Nevyn Nah, a Singapore-based analyst. “It also allows sellers to blend different grades to meet specific quality requirements.”
Grades such as Eagle Ford from the US, Algeria’s Saharan Blend, North Sea’s Ekofisk and Venezuela’s Diluted Crude Oil have been offered from tankers in the Straits of Malacca, in addition to Australia’s Van Gogh and Oman oil, according to a Bloomberg poll of five refiners and traders involved in the region’s activity. The waters off Singapore and Malaysia are ideal for setting up shop because they’re a gateway to key nations including China, the top energy user, and India, where demand is growing fastest.
At least 15 such vessels are currently floating in the region — all VLCCs with the capacity to carry 2 million barrels of oil each, according to the survey and ship-tracking data compiled by Bloomberg. Companies including Vitol, the world’s biggest independent oil trader, and Trafigura have recently chartered older supertankers for as long as eight months, some of which are likely to be used for storage, Pareto Securities AS said in a note last month. Press officials at Vitol, Trafigura, Gunvor and Glencore all declined to comment on their strategy.
The amount of oil stored in tankers reached a 2017 high of 111.9 million barrels last month, according to Paris-based tracking company Kpler SAS. Traders thrived in 2015 and 2016 by taking advantage of the glut that led to a strong “contango” — when contracts for later delivery trade higher than near-term prices.