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A Ticking Time Bomb For Oil Markets

Crude oil in floating and onshore storage in Iran has exceeded 110 million barrels, energy data analysts at Kpler reported this week, noting the number of barrels in floating storage specifically had increased almost twofold over the last two months.

Oil in floating storage reached 56 million barrels, Kpler said, as exports continued to slide, falling to 417,000 bpd in July from 532,000 bpd in June. Oil in onshore storage stood at 55.5 million barrels at the start of this week. This is up by 11 million barrels since the middle of May, shortly before the expiration of the sanction waivers. Onshore inventories will likely continue to rise steadily as floating storage is running near capacity.

Meanwhile, Iranian oil is also pushing Chinese stockpiles higher. From 3.2 million barrels in mid-June, China’s strategic petroleum reserve in the northeastern province of Liaoning has reached 6 million barrels to date.

China has become Iran’s most important oil buyer following the removal of U.S. sanction waivers in May, Kpler also noted. In June, Iran exported oil and condensate to China at a rate of 174,000 bpd, of which two-thirds was loaded after the expiration of the sanction waivers. This month, shipments increased considerably to more than 360,000 bpd.

Turkey is also importing Iranian crude at a growing rate despite the risk of sanction violation action on the part of Washington and shipments to Syria are probably continuing although there is no full visibility on these, Kpler says, as Iranian tankers turn off their geolocation devices in the Mediterranean.

So, there’s more than 110 million barrels of crude in storage, ready to flow and push prices lower. Since the chance of the United States suddenly reconsidering its stance on Iran is non-existent, this amount will only continue to rise. The possibility of it turning into a ticking bomb for international prices at some point in the future may be negligible now, but does not have to stay negligible forever.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on July 30 2019 said:
    Describing it as a time bomb for the global oil market is too big for the subject matter of your article.

    110 million barrels in storage are equivalent in normal circumstances to just over one day's oil consumption by the global oil market. However, in the current circumstances where there is a trade war going on between the US and China, they augment an already existing glut in the market depressing oil prices.

    An early end to the trade war will invigorate the global oil market and enable it to absorb the bulk of the glut given that the fundamentals of the global economy are still robust. So 110 million barrels are not a ticking bomb. They could be absorbed in 26.4 hours based on the oil market’s current consumption of 100 mbd.

    If it is true (and this is a big if) that Iran has 110 million barrels in onshore and offshore storage, this wouldn’t be surprising since all major oil producers must have various volumes of oil stored as a result of the trade war, hence the growing glut.

    If, however, you are trying in a circuitous way to say that US sanctions have adversely affected Iranian crude oil exports, then you are totally wrong.

    US sanctions have so far failed miserably to dent Iranian crude oil exports with China, India and Turkey as well as Russia (oil-for-goods) continuing to import increasing volumes.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Richard R on July 31 2019 said:
    According to Reuters, storage capacity at Kharg Island, which is Iran’s largest oil export terminal, was reported to be 16 million barrels as of mid-2008, with Irans plans to increase this to 31M bbls by 2025.
    So lets say that was achieved earlier, ie now, that leaves nearly 90M bbls "offshore storage", so 40 supertankers work of oil floating around one of the worlds busiest shipping routes. Seems unlikely.
  • Dan Pearson on August 07 2019 said:
    It is always informative to hear Dr Mamdouh G Salami's comments. And yes I have heard that he is associated in favoring Middle East oil, etc. Regardless, he provides interesting and knowledgeable information.

    OILprice should have a like dislike, or thumps up/down so folks can endorse others comments.
    Thank you for your comments Dr Mamdouh G Salaamed.

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