Oil storage at sea halves to 25 mln barrels

* Oil traders cash in floating storage contracts

* At least 12 VLCCs still earmarked for sea storage - data

* Trade will revive if contango widens again (Adds detail throughout)

By Jonathan Saul

LONDON, March 9 (Reuters) - Only half the tankers booked to hold crude oil at sea two months ago are still earmarked for storage after a rally in oil prices, but trade and shipping industry sources say the business could revive again quickly if the market turns.

Oil prices collapsed by 60 percent between June and January, pushing the cost of oil for immediate delivery to a big discount below future prices and making it profitable to buy oil and store it for sale later.

The oil market has rallied over the last two months, squeezing that discount, also known as a "contango", and many of the trading companies that took oil sea storage options have now cashed in their profits.

Mining and commodities company Glencore (Xetra: A1JAGV - news) said last week traders were dropping floating storage plans.

Industry sources and shipping data show at least 12 vessels, mainly Very Large Crude Carriers (VLCCs), each capable of carrying 2 million barrels of oil, are currently earmarked as being booked for floating storage. Another even bigger tanker is also booked to store oil, they say.

That's around 25 million barrels worth of oil, down from around 50 million barrels estimated in the first few weeks of this year.

"The volume of floating storage is dropping," said a veteran tanker broker at Affinity in London, who asked not to be identified by name.

Earlier this year, many traders had considered booking floating storage for crude oil and took long-term time charters on vessels that could have been deployed as tanks at sea.

"It made sense to take many tankers on time charter contracts, which is not that same as for floating storage," the Affinity broker said. "It is clear that the initial indications of 30 plus tankers being used to hold oil in floating storage were never going to materialise."

Oil tanks are full in many oil ports around the world and U.S. inventories are at record levels, making storing oil onshore expensive.

Brokers say the floating oil storage trade has not gone away.

Arctic Securities analyst Erik Nikolai Stavseth said there was still potential demand for 30 to 60 VLCCs to be used for floating storage assuming 20 to 40 percent of global oil surplus gets parks in onshore storage facilities.

"Higher demand for crude oil is expected to tail off as refineries go into maintenance - driving more crude into storage - first onshore and then floating storage if the contango allows for it," Stavseth said. (Reporting by Jonathan Saul; Editing by Christopher Johnson)