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Tankers carrying some 20 million barrels of crude oil are idling off the coast of California as onshore storage space runs out and the level of supply remains excessively high.
Bloomberg reported that the tankers, which carry enough oil to satisfy a quarter of global oil demand, are scattered along the coast from Long Beach to San Francisco Bay.
Analysts are warning that storing oil offshore on tankers as onshore storage facilities fill up could end up engaging a third of the global tanker fleet. This may not be as big pf a problem as it would have been at another time since the slump in demand for oil must have affected demand for tankers equally adversely--meaning there is free tanker capacity to use for storage.
Demand for tankers to store oil has intensified significantly, the Wall Street Journal reported this week.
“We’ve reached a point where there must be some kind of halt in production to suck up the glut,” the daily quoted a tanker broker as saying. “It’s the first time ever that we get more calls to book ships to store oil than to move it.”
According to data reviewed by the WSJ, some 100 of the 815 VLCCs available globally were booked during the 12 days to April 21, with average daily freight rates at $150,000. That’s compared with $10,000 a year earlier, according to shipper Frontline.
Meanwhile, storage space in the United States is getting closer to running out. “At the current rate of increase, storage in the U.S. would fill in 7 to 8 weeks,” a Mizuho analyst warned this week, while another expert warned of bankruptcies.
“The math is pretty simple. Current oil production is about 90 million barrels per day, but demand is only 75 million barrels per day.” Gregory Leo, CIO of IDB Bank, told MarketWatch. “While futures contracts expiring later this year are still trading as high as $30, if this supply/demand imbalance is not corrected their fate will be the same. And with the price of oil so goes the fate of some energy companies.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.