Oil glut deepens with 100m barrels at sea
as a year-long supply glut fills up available storage on land and contributes to port congestion in key hubs.
Oil glut deepens with 100m barrels at sea
David Sheppard and Neil Hume
More than 100m barrels of crude oil and heavy fuels are being held on ships at sea, as a year-long supply glut fills up available storage on land and contributes to port congestion in key hubs.
From China to the Gulf of Mexico, the growing flotilla of stationary supertankers is evidence that the oil price crash may still have further to run, as the world’s energy infrastructure starts to creak under the weight of near-record inventory levels.
The amount of oil at sea is at least double the levels of earlier this year and is equivalent to more than a day of global oil supply. The numbers of vessels has been compiled by the Financial Times from satellite tracking data and industry sources.
Unlike the last oil price collapse during the financial crisis only half of the oil held on the water has been put there specifically by traders looking to cash in by storing the fuel until prices recover.
Instead, sky-high supertanker rates have prevented them from putting more oil into so-called floating storage, shutting off one of the safety valves that could prevent oil prices from falling further.
JBC Energy, a consultancy, said in many regions onshore oil storage is approaching capacity, arguing oil prices may have to fall to allow more to be stored profitably at sea.
“Onshore storage is not quite full but it is at historically high levels globally,” said David Wech, managing director of JBC Energy.
“As we move closer to capacity that is creating more infrastructure hiccups and delays in the oil market, leading to more oil being backed out on to the water.”
Patrick Rodgers, the chief executive of Euronav, one of the world’s biggest listed tanker companies, said oil glut was so severe traders were asking ships to go slow to help them manage storage levels.
“Tanker shipping has never been a delay business and all of a sudden there are delays everywhere,” said Mr Rodgers
“We are being kept at relatively low speeds. The owners of the oil are not in a hurry to get their cargoes. They are managing their storage capacity by keeping ships at a certain speed.”
Traders looking to make money by storing oil at sea faces a number of challenges. The average daily hire rate for a very large crude carrier has been close to $60,000 a day this year and briefly hit $108,000 last month as producing have scrambled to find customers further afield because of a supply glut estimated at up 2m barrels a day.
The difference in price between a barrel of North Sea Brent today and six months’ time means the most traders could earn is roughly $9.5m versus costs of about $11m for a vessel capable of carrying 2.2m barrels of oil.
“The tanker market got turbocharged by Opec’s decision not to cut production,” said Svein Moxnes Harfjeld, chief executive of DH Tankers, referring to the cartel’s decision in November last year to keep pumping flat out in an attempt to defend its market share.
A widening oil market structure known as contango — where future prices are higher than spot prices — could make floating storage possible. The difference between Brent for delivery in six months’ time and now rose to $4.50 last week, up from $1.50 in May. Traders estimate it may need to reach $6 to make sea storage viable.
Oil already at sea sits in a number of key regions. Off China, which is on course to overtake the US as the world’s largest crude importer, five heavily laden VLCCs — each capable of carrying more than 2m barrels of oil — are parked near the ports of Qingdao, Dalian and Tianjin.
Stockpiling by China’s Strategic Petroleum Reserve has mopped up some of the oil glut. Beijing has bought at least 120m barrels of additional oil in 2015, although analysts believe its SPR is nearing capacity. Tankers have also faced delays following a port explosion at Tianjin in August.
Off Indonesia, Malaysia and Singapore, Asia’s main oil hub, around 35m barrels of crude and shipping fuel are being stored on 14 VLCCs.
“A lot of the storage off Singapore is fuel oil as the contango is stronger,” said Petromatrix analyst Olivier Jakob. Fuel oil is mainly used in shipping and power generation.
In Europe, a number of smaller tankers are facing short-term delays at Rotterdam and in the North Sea, where output is near a two-year high. In the Mediterranean a VLCC has been parked off Malta since September.
On the US Gulf Coast, tankers carrying around 20m barrels of oil are waiting to unload, Reuters reported. Crude inventories on the US Gulf Coast are at record levels.
A further 8m barrels of oil are being held off the UAE, while Iran — awaiting the end of sanctions to ramp up exports — has almost 40m barrels of fuel on its fleet of supertankers near the Strait of Hormuz. Much of this is believed to be condensate, a type of ultralight oil. |
