Crude oil and refined products are once again begin stored on tankers floating at sea, a sign that the two-year oil glut is far from over.
Short-term floating storage is now at its highest level since 2009, the International Energy Agency said in its July Oil Market Report. Bloomberg echoed that conclusion, finding that 9 million barrels of crude oil were floating off of the coast of the UK in the North Sea in June, a sharp jump from 7 million barrels in May. Three traders who asked not to be identified told Bloomberg that the cargoes will probably sit anchored offshore for quite a while because of weak demand in Europe. One cargo has been sitting there since April 23.
Altogether, the IEA estimates that about 95 million barrels of oil are sitting in floating storage, the highest level since a wide contango opened up in the aftermath of the financial crisis in 2008-2009, which led to oil traders stashing oil at sea.
But the IEA said that the current floating storage predicament is different from the situation in 2009 when oil traders were hoping to store a glut of oil for a profit at a later point in time. The IEA says that the market contango does not support floating storage today – the price differential between near-term contracts, while trading at a discount to futures one year out, is not wide enough to justify storing oil at sea. Instead, oil and refined products such as gasoline and diesel are being stored on tankers because of logistical problems. In addition to the North Sea, the IEA cited a recent backup of gasoline tankers at New York harbor because onshore storage facilities were mostly already in use.
The rising use of floating storage proves that the market is far from balanced, even if it is moving in the right direction. The IEA warned in its report that a gasoline glut could force another oil price rout, and the presence of floating storage also demonstrates that there is still too much oil on the global market.
By Charles Kennedy of Oilprice.com
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