Oil Tanker Glut

If you put all of the idle oil tankers in a row, it would stretch for 26 miles. Even worse, it might indicate a 25% rate decrease for shipping in 2010.

A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.

The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers. That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.

Notice that the shippers won't break even at that price.

Even more interesting it seems traders book ships for storage in order to manipulate energy futures.

Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.

Traders are storing enough crude at sea to supply the 27- nation European Union for more than three days

So, energy traders are buying oil cheap, stashing it at sea and waiting until the price comes back. It's the highest amount of storage on record and helps prop up shipping rates too.

In 2008, this site discussed oil futures manipulation and some said it could not exist, for the excess supply had to be stored somewhere, well, now you know, it's possible to store excess oil.

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