Evaluating the potential return of contango for tankers

An analysis on the implications of contango for tankers that originally appeared in the BRS Weekly Tanker Newsletter (23 September) was featured in TradeWinds: https://www.tradewindsnews.com/tankers/contango-looming-large-can-oil-price-usher-in-new-payday-for-tanker-owners-/2-1-1714358

Summary: After nearly 4 years of consistent backwardation, by mid-September, and after falling to their lowest levels since 2021, benchmark crude prices appeared poised to potentially flip into contango. A combination of decelerating Chinese oil demand growth, a potential recession in US manufacturing, and an oversupply of oil were seen as the main culprits suggesting continued oil price weakness to end-2025, and therefore, the possibility of a persistent contango. Unlike the previous Covid-induced contango, we predicted that oil demand growth is sufficiently healthy at 1.2 mb/d to predict prices from falling to 2020 lows.

Contango is also necessary to stimulate stock building, as oil inventories are low in many large oil consuming countries. This should in turn stimulate tanker demand to ship oil between crude and product exporters to consumers. However, the contango is unlikely to be wide enough to encourage the floating storage play for either crude or diesel, as occurred during the last contango in late-2020.

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