UPDATE:N Sea Forties Floating Storage Ends As Market Tightens

5th Jul 2010 13:39

(Adds maintenance at Hound Point) By Sherry Su Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Floating storage of Forties crude oil in supertankers in the North Sea has come to an end as a sharp rise in spot prices prompted destocking, traders and shipbrokers said Monday. The last Very Large Crude Carrier floating storage vessel Bunga Kasturi Empat, chartered by Royal Dutch Shell PLC (RDSA), is now discharging at Rotterdam after floating off Southwold, eastern England, for one month, they said. One VLCC typically holds 2 million barrels of crude oil. No supertankers are being used to store Forties crude in the North Sea. As well as the sharp rise in spot prices, narrowing time spreads in crude futures encouraged destocking. Forties has been strengthening sharply over the past sessions, partly due to tightening supply amid planned field maintenance, and strong Russian Urals crude in North West Europe, traders said. Urals is typically seen as a substitute for Forties crude. Forties was bid at a premium of around 40 cents above Dated Brent Friday, the highest level in nearly 11 months, but still no sellers emerged. Narrowing contango in crude futures also made storage increasingly uneconomic. In a crude futures contango near-term contracts are priced cheaper than those in the future. If storage costs are low enough, the price structure allows traders to make a profit by buying crude in the spot market, then selling it at a pre-agreed price in the future. At 1130 GMT, the front-month August Brent contract on London's ICE futures exchange traded at a slight discount of 20 cents to the September contract, compared with a discount of around $1 two weeks ago. Traders mostly say Forties floating storage is unlikely to rise in the coming months, mainly due to planned maintenance at Hound Point, Scotland. The No. 1 jetty, which can handle vessels of up to 350,000 deadweight tons, has been shut from July 1 for three-month maintenance works, traders said. The Hound Point terminal, which is owned and operated by BP PLC (BP), consists of two jetties but only the No. 1 jetty can berth VLCCs. This means no VLCCs will be able to load Forties at Hound Point for three months from July 1. -By Sherry Su, Dow Jones Newswires; +44(0)20-7842-9329; [email protected] (END) Dow Jones Newswires July 05, 2010 08:39 ET (12:39 GMT)