Floating storage
Meaning
Floating storage is using a tanker to hold oil at sea, usually when future oil prices are high enough above spot prices to cover the charter cost.
Also written as Contango storage, Storage play
Floating storage explained
In a steep contango market, traders buy oil now, store it on a time-chartered tanker and sell it forward at a profit. Large-scale floating storage takes ships out of the trading fleet and pushes freight rates up.
Related terms
Contango
Contango is when future oil prices are higher than today's price; the opposite, backwardation, is when future prices are lower.
Time charter
A time charter hires the ship for a period at a daily rate; the charterer directs its employment and pays for voyage costs like bunkers and port fees.
VLCC
A VLCC is a very large crude carrier of roughly 200,000 to 320,000 deadweight tonnes, carrying about 2 million barrels of crude oil.