The global glut of crude oil is changing traditional storage dynamics by providing incentive for some of the world's largest oil traders to store crude at sea, according to a recent Reuters article.

"The shipping lists (provided to Reuters) indicate the trading firms have been able to hire the Very Large Crude Carriers (VLCC) for less than $40,000 a day - well below spot rates of between $60,000 to $70,000 a day," the article said.

With a contango carry of $8/bbl over the year, a VLCC of 2mbbls has inherent value of 16m$ over this period which equates to 44k$/day, i.e. well above the reported fixture levels (on these older less efficient units) of <40k$/day. The difference of c.5k/day totals c.1.8m$ over the year, which is sufficient to finance the port costs and (heavy) bunker consumption for a load/discharge voyage and for redelivery positioning.

It certainly makes sense, and if the carry continues at these levels, or edge even higher, then we can expect to see more similar VLCC storage fixtures. The units will most likely remain in the vicinity of the loading facility to maintain full discharge destination options. Oil on water numbers will escalate and vessel avails will suffer long term, supporting firm VLCC freight rates.

However, the carry would have to increase to c.15$/bbl over a year to support Suezmax storage and much higher before Aframax units could be considered.

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