Oil Traders Drain Hid­den Caribbean Hoards as OPEC Cuts Bite

The Star (St. Lucia) - - REGIONAL - ---Bloomberg By Javier Blas and Lu­cia Kas­sai

Dur­ing the oil price rout, is­lands in the Caribbean were ex­hibit A for the long­est-last­ing glut in three decades, with mil­lions of bar­rels stored there. Now that oil is flow­ing again, a sign the mar­ket is re­bal­anc­ing.

Since mid-Fe­bru­ary, be­tween 10 mil­lion and 20 mil­lion bar­rels have left the Caribbean, ac­cord­ing to es­ti­mates from traders who asked not to be named be­cause their data is pro­pri­etary. The draw, hardly no­ticed by most in the mar­ket, re­flects the im­pact of the out­put cuts or­ches­trated by OPEC and Russia.

Low taxes and the Caribbean’s prox­im­ity to U.S. and Latin Amer­ica oil cen­tres have made it into one of the world’s largest oil stor­age cen­tres, hold­ing as much as 140 mil­lion bar­rels. While a lack of of­fi­cial data can make the area in­vis­i­ble to some, the in­for­ma­tion is key in fram­ing a full pic­ture of global sup­ply and de­mand at a time of mar­ket un­cer­tainty.

“Caribbean and other stor­age has drawn down rapidly over the past weeks,” said Am­rita Sen, chief oil an­a­lyst at En­ergy As­pects Ltd., in a note to clients. “The first in­di­ca­tions that the re­bal­anc­ing has be­gun are here.”

On Sun­day Mo­ham­mad Barkindo, OPEC’s Sec­re­tary­Gen­eral, said he re­mained “cau­tiously op­ti­mistic” the gap be­tween sup­ply and de­mand was start­ing to tighten. The Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries and the 11 coun­tries that agreed to trim pro­duc­tion in the first half of the year are now weigh­ing whether to ex­tend the cut­backs to the end of 2017.

West Texas In­ter­me­di­ate oil fell 0.7 per­cent to $50.24 a bar­rel in New York on Mon­day. Oil prices have fallen about 10 per­cent this year as crude stock­piles in the U.S. have since De­cem­ber grown by al­most 55 mil­lion bar­rels to 534 mil­lion bar­rels, the high­est since 1929.

Grand Ba­hama, Aruba, Bon­aire, Cu­raçao, St. Eus­tatius and St. Lu­cia, mostly known for the beaches that draw sun­chas­ing vis­i­tors from around the world, all have sig­nif­i­cant de­pots to store crude and re­fined prod­ucts.

Chi­nese oil com­pa­nies, which lease mil­lions of bar­rels of stor­age in the south­ern Caribbean Sea, are lead­ing the stock-draw from those is­lands, the traders said. PetroChina Co. used the su­per-tanker Nec­tar last month to re­move stored crude from Aruba and Cu­raçao, ac­cord­ing to ship-track­ing data com­piled by Bloomberg. It also loaded the Maxim, an­other very-large crude car­rier (VLCC), with crude from stor­age in the Caribbean Sea.

In­dian oil re­fin­ers are also tak­ing crude out. In a rare ship­ment, Re­liance In­dus­tries Ltd. re­ceived Ecuado­rian crude stored in the is­land of Grand Ba­hama in the DHT Con­dor su­per-tanker. More re­cently, an­other gi­ant tanker, the Am­phitrite, took Venezue­lan crude from a ter­mi­nal in St. Eus­tatius, also for Re­liance.

“Glob­ally, crude stocks are com­ing down,” said Mike Loya, the Hous­ton-based top ex­ec­u­tive at Vi­tol Group BV, the world’s largest in­de­pen­dent oil trader.

The Caribbean out­flows also re­flect a change in the re­la­tion­ship be­tween spot and for­ward oil prices. For much of 2015 and 2016, the shape of the oil curve showed spot prices below for­ward prices. In a con­tango mar­ket, traders can buy bar­rels, place them on stor­age and lock in a profit by sell­ing them for­ward in the fu­tures mar­ket.

The price dif­fer­ence be­tween Brent crude oil for im­me­di­ate de­liv­ery and the one-year for­ward, a key con­tango yard­stick, reached more than $11 a bar­rel in Jan­uary 2015. But af­ter OPEC and Russia an­nounced their out­put cuts in late last year, the con­tango has all but dis­si­pated, with the one-year Brent price spread at just about 80 cents a bar­rel on Mon­day.

“Less vis­i­ble in­ven­to­ries have been draw­ing,” Mar­tijn Rats, oil an­a­lyst at Mor­gan Stan­ley in London, said in a note to clients.

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