Higher for Longer or is it: What Impact will end of rate tightening cycle have on East-of-Suez Oil Storage Industry in 2024 and Beyond – Winners & Losers?

The additional costs of storing oil during a period of sustained high interest rates are stark. Take a two-million barrel cargo with prices at, say, $80 a barrel. Based on an interest-rates at 5%, it would cost a trader an $8 million per year in financing to hold onto the consignment. Oil refiners, who buy crude and then sell fuels like gasoline and diesel at a later date, also see their profits squeezed by higher financing costs. It all serves to increase the chances of the world having to get used to lower levels of oil inventories. The disincentive to store is doubled when later oil prices are trading at a discount to nearby ones — a structure known as backwardation, that is present at the moment —because it means traders are forced to sell barrels they had stored at a loss.

Listen to the insights of Michiel Gilsing, Member of Executive Board & CFO, VOPAK