The long wait has finally ended as crude futures flipped from backwardation to contango since mid-April and have sustained this structure for over a month now – a key factor to support crude restocking and robust VLCC earnings as McQuilling predicted in the January Tanker Market Outlook. As of May 19th, the current 12M contango between Jan 2026 and Jan 2027 stands at US $0.96 per barrel, slightly up from $0.78 per barrel at the end of last month. The crude contango is expected to expand further as the front-end of the pricing curve is expected to face continuous pressure from the softening economy and oil demand (especially in the West) combined with increasing OPEC production. The weakening US dollar (after Moody’s downgraded US credit rating) and pegged Saudi Riyal have pushed the nation to offset the currency exchange-rate risk by increasing its crude output. We foresee land-based storage being filled first – from the current 40.4 days of forward demand coverage to the 2017-19 average of 52.2 days, while the increase in the number of VLCC floating storage is subject to a handful of factors. Using the current $0.96 per barrel 12M Brent contango as an example, the revenue of $1.92 million would be completely offset by the $16.2 million in VLCC charter-in costs and $2.18 million in bunker consumption. In the current freight and bunker environment, the 12M contango structure needs to be expanded to at least US $8.23 per barrel to breakeven a commercial floating storage play – almost impossible unless OPEC+ countries reignite another “Price War”.
It is likely, however, to find some increased VLCC floating storage along the coast of Iran (dark brown bars in the right graph; mainly NITC ships) amid the current US-Iran nuclear talks. A net increase of 13 VLCC floating storages in Iran were captured back in the 1H of 2015 before the 2015 US-Iran nuclear deal, as Iran stocked up crude on Iranian tankers that were later sold to Western buyers.
Figure 1: Brent Futures Settlement as of May 19th 2025 Figure 2: VLCC Floating Storage Usage by Region
Sources: AIS Tracking, CME (as of May 19th, 2025), McQuilling Services
