Vitol Said to Offer 4 Million Barrels of Stored Oil as Glut Ebbs

(Bloomberg) -- Vitol Group BV is offering to sell Nigerian crude oil from a storage terminal in South Africa, five traders familiar with the matter said, in what may be a signal that the global supply glut is beginning to ease.

The world's biggest oil merchant has been offering 4 million barrels of Nigeria's Qua Iboe for delivery to Europe that it's been keeping at storage facilities in Saldanha Bay on South Africa's west coast, according to the people, who asked not to be identified because the information is private. Normal trades are about 1 or 2 million barrels each.

The proposed sales offer investors a signal that a glut that crashed prices could be clearing because it shows traders may be emptying out stockpiled supplies. They were able to profit from storing thanks to a pricing structure called contango, in which the glutted market made immediate prices cheapest of all. Saudi Arabia is now leading OPEC and its allies in trimming global supplies.

“With the contango structure narrowing, it is no longer economical to stockpile,” said Ehsan Ul-Haq, principal consultant at KBC Advanced Technologies. “Some refiners might be willing to take large volumes of West African crude if they can get it before they end their seasonal refinery turnarounds.”

Brent crude oil futures for May traded 61 cents a barrel lower than November prices, according to data from ICE Futures Europe at about 4:34 p.m. in London on Thursday. As recently as November, the gap for equivalent contracts stood at $4.25. Provided traders could find storage and finance for cheaper than that, then they could profit from holding onto barrels.

Andrea Schlaepfer, a Vitol spokeswoman, declined to comment.

“Spreads will come under pressure” as stored barrels are sold, said Amrita Sen, chief oil analyst at Energy Aspects in London. “Everytime the curve flattens, stocks will be unwound and then spreads will weaken. This process will occur till the point there is no storage left to draw down.”

The Organization of Petroleum Exporting Countries agreed in November to cut output by 1.2 million barrels a day. Eleven non-member producers also pledged curbs.

The additional offers come at a time when shipments of the crude in question are running more slowly than normal. Loadings of Qua Iboe crude are running 10-13 days behind schedule, two traders with knowledge of the schedule said yesterday. Multiple supertankers are anchored nearby and there were no cargoes collected in the final week of February, ship-tracking data compiled by Bloomberg show. Under normal circumstances, Qua Iboe is Nigeria's biggest export grade.

--With assistance from Alex Longley and Julian Lee

To contact the reporter on this story: Rupert Rowling in London at rrowling@bloomberg.net.

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, John Deane