Last checked at 
* Oil price recovery, flattening contango trigger storagesales
* Sales focus on oil stored on tankers
* Prices could come under pressure as stored oil adds toglut
By Florence Tan
SINGAPORE, March 9 (Reuters) - Traders who have been storingoil since the start of the year are selling some supplies backinto the market, completing a trade-play that made oil storageprofitable, and re-injecting fuel into an already oversuppliedmarket.
The selling signals a winding down of a strategy that hasseen at least 50 million barrels of oil stored in tankers,equivalent to about one month's consumption in Britain, althoughtraders said it was not clear how much oil has been sold.
A steep fall in the price of crude from last June to Januaryenabled traders to potentially make money by storing oil fordelivery at a later date, as the market moved into an unusuallylarge contango, with prices in future months well above the spotprice.
Traders such as Trafigura, Vitol andGunvor, as well as energy majors like BP andShell stored oil on land and in tankers to capitaliseon the price movement.
Under the strategy, a trader buys oil and sells it forward,locking in a profit as long as the price difference is higherthan the cost of storage. As oil prices have recovered thecontango has narrowed, making it less profitable to store oil,and prompting some selling.
"They've already locked in the contango and financing is notexpensive," said a trader with a western bank in Singapore.
"If they unwind now, they can make 30 cents on paper, plusthe premium on the crude," he said, referring to firmer Asiandemand that has boosted some selling prices.
Brent crude has stabilised around $60 a barrel, upfrom six-year lows of $45 in mid-January, cutting the contangobetween the first and second month
For Dubai crude, which is traded over the counter, thedifference between the first two months has also narrowed to 70cents from about $1 in early January.
Stored oil being re-injected into the market could add toincreased supply from seasonal factors, putting prices underpressure as oversupply builds.
"A supply overhang of about 1.5 million barrels/day shouldbuild as seasonal demand eases," ANZ bank said this week, addingthat "a lack of production cuts will send prices lower."
FLOATING STOCKS SOLD
While onshore storage tanks, such as in South Korea and inthe United Arab Emirates, are still filling with surplus oilfrom the Middle East, Europe and Russia, grades like Abu Dhabi'sMurban and Iraqi Basra Light, stored on more expensivesupertankers, have been sold, traders said.
Glencore's head of oil, Alex Beard, said this weekthat the current pricing structure allowed for land-basedstorage but made more costly tanker storage unattractive.
Asian traders are also profiting from price hikes for MiddleEast Gulf grades, which will add a profit of $1.20 a barrel fora cargo of Basra Light loaded in January and sold in April.
After deducting storage and financing costs of about 70cents a barrel, traders could bag an estimated profit of $3million for a 2-million-barrel shipment over four months, froman outlay of around $90 million.
Traders who bought Murban crude in December and sold inFebruary could make 85 cents a barrel just on the rise in itsmonthly official selling price and spot premiums.
However, some traders may opt to hold the oil longer if theyhave chartered ships for a year. Similarly, there is littlepressure to sell oil from the less expensive onshore tanks whichoften have longer storage times.
(Editing by Henning Gloystein and Richard Pullin)
