Contango carnival

VLCC rates are shaping up to reach three-year highs during peak season, DNB Markets says.

Contango in the oil price driving demand for floating storage is behind the optimism voiced by analysts Nicolay Dyvik, Oyvind Berle and Petter Haugen.

In their daily report, the trio said traders are fixing tankers to carry oil for storage to South Africa from the North Sea, West Africa and the Middle East.

“The location leaves traders with the option of selling crude both East and West," they wrote in a report that suggests contango will remain until late April 2015.

"South Africa’s Saldanha Bay has a large oil storage terminal with capacity of 45 million barrels, equivalent to 45 suezmaxes or 22 VLCCs,” they added.

“The fact that we are about to enter high season with VLCC rates at $38000/day, close to zero fleet growth coupled with open contango could lead to VLCC rate spikes not seen over the past three years,” the analysts said.

DNB is forecasting VLCC rates of $31,000 daily in the second half of 2014.