• 3 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 7 minutes Saudi and UAE pressure to get US support for Oil quotas is reportedly on..
  • 11 minutes China devalues currency to lower prices to address new tariffs. But doesn't help. Here is why. . . .
  • 15 minutes What is your current outlook as a day trader for WTI
  • 17 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 11 hours Will Uncle Sam Step Up and Cut Production
  • 1 day Movie Script: Epstein Guards Suspected Of Falsifying Logs
  • 33 mins Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 12 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 15 hours Continental Resource's Hamm (Trump Buddy) wants shale to cut production.Can't compete with peers. Stock will drop in half again.
  • 1 day Significant: Boeing Delays Delivery Of Ultra-Long-Range Version Of 777X
  • 3 hours Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 8 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 2 days I think I might be wrong about a 2020 shakeout
  • 2 days Kremlin Says WTO's Existence Would Be In Doubt If the U.S., Others Left
  • 1 day Why Oil is Falling (including conspiracy theories and other fun stuff)
  • 51 days To be(lieve) or Not To be(lieve): U.S. Treasury Secretary Says U.S.-China Trade Deal Is 90% Done
Alt Text

Will Shale Rise From The Dead?

The shale oil business is…

Alt Text

Could This Be A Turning Point For Petrobras?

Brazil’s Petrobras is making some…

Alt Text

Trump Freezes All Caracas Assets In Surprise Move

President Donald Trump signed an…

James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

More Info

Premium Content

Oil Tankers Are Filling Up As Global Storage Space Runs Low

The rebound in oil prices is still not here, and new data suggests that it will take some more time before the markets start to balance out.

Global supplies are still too large to justify a significant rally in oil prices. The latest indicator that the glut of oil has yet to ease comes from the FT, which concludes that there is 100 million barrels of oil sitting in oil tankers. Oil has piled up in tankers that are floating at sea, as onshore storage space begins to dwindle.

The level of crude oil stashed at sea is nearly double what it was earlier in 2015. “Onshore storage is not quite full but it is at historically high levels globally,” David Wech of JBC Energy told the FT. “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.”

Rising levels of crude stored at sea has more to do with shrinking capacity onshore, rather than traders stockpiling volumes in order to profit from an eventual rebound in prices. Oil tanker rates have surged this year, so it doesn’t exactly make sense to store oil at sea strictly for a trading opportunity. Daily rates for very large crude carriers (VLCCs) are around $60,000 per day, although down from a peak of $111,000 per day hit on October 8. The collapse of crude prices over the past year have contributed to a surge in tanker rates – while volatile, VLCC daily rates consistently ran as low as $20,000 over the last few years. Related: LNG Glut Set To Worsen Considerably Over Next 3 Years

The contango situation in oil markets – in which front month contracts are cheaper than delivery at some point in the future – is growing, but not quite large enough to justify storing oil at sea. The premium for delivery at six months in the future compared to today is $4.50 per barrel, but the FT estimates that it may need to rise to $6 in order for the trade to make sense.

Thus, the run up in floating storage has more to do with a scarcity of available storage space on land. In fact, the CEO of Euronav, a tanker company, told the FT that traders are even asking his company to slow down the movement of tanker shipments in order to assist them in managing storage levels, effectively parking some oil at sea. VLCC tankers are sitting at several ports in China, and more than a dozen VLCCs are also sitting offshore in Malaysia, Indonesia, and Singapore. A backlog of tankers sitting in the U.S. Gulf of Mexico is also rising.

The brimming levels of storage at sea mirror the rising onshore figures for crude oil storage around the world. In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year. And OPEC reported that crude oil stockpiles in OECD countries currently exceed the running five-year average by 210 million barrels. Storage is now at the highest level in at least a decade. OPEC said the cause is rather simple. “The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand,” the group concluded in its latest monthly report. Related: How To Play A Potential Collapse In The HAL/BHI Merger

 

The glut suggests the oil price downturn is not over. In fact, rising production from places like Iraq is offsetting the declines in the U.S. shale patch. Bloomberg reports that at least 10 oil tankers from Iraq are set to arrive on U.S. shores in November, a delivery of around 19-20 million barrels. That is the largest delivery in such a short period of time since June 2012, and it is about 40 percent more than the amount sent in October. Related: 2-Mile Long Stretch Of Iraqi Oil Tankers Bound For U.S. Shores

The flood of Iraqi crude will put further pressure on U.S. producers, as the fight for market share could push down oil prices. Iraq is producing near record levels, with rapid gains in output over the past year.

The U.S. has lost about 500,000 barrels per day in production since peaking in April, but Iraq has increased output by about 600,000 barrels per day over the same timeframe (although monthly totals ebb and flow). Iraq is now producing over 4 million barrels per day, sharply up from an average of 3.2 million barrels per day last year.

Persistently low oil prices will lead to a deeper contraction in U.S. production. Rig counts continue to decline, despite the brief uptick over the summer. Pioneer Natural Resources, for example, has scrapped plans to add more rigs through the rest of this year. Pioneer had plans to add 2 rigs per month for the rest of 2015, but has shelved those plans after adding eight between July and October.

In short, oil prices could remain subdued because of ongoing excess supply, likely forcing deeper pain on U.S. producers.

By James Stafford of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play