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Oil has been called names (“dirty fossil fuel!”). The cartels use it as a weapon to thwart their rivals. ISIS steals it and pimps it out on some sketchy black market. Swaths of it are set on fire and used as a shield. The pipelines through which it travels to and fro are bombed or protested—nearly daily. Sometimes unscrupulous babysitters let it loose to drown in an ocean or float carelessly down the river, never to be recovered. And now, oil, at least that destined for Europe, is homeless and is not being allowed to disembark after shipment.
Oil majors in northwest Europe have booked tankers to store 9 million barrels of oil as the international supply glut grows in size, according to a ship-operator who spoke to Bloomberg.
The companies have resorted to using tankers as storage as signs emerge that onshore storage is filling up on the land-starved continent.
Next month, Northwest Europe, which includes mega-producer Norway as well as the United Kingdom, France, Germany and others, expects to load the highest number of shipments in 4.5 years.
Somewhere in between 14 to 16 medium-sized Aframax tankers have lined the ports, according to Jonathan Lee, the CEO of Tankers International. Lee, whose firm operates the biggest pool of supertankers in the world, confirmed that the lack of land space to store fuel is the likely cause of the tanker buildup.
Reuters reported on Friday that the rate to book an Aframax tanker has almost doubled from the July figure, partially due to the widespread use of ships as floating storage units.
North Sea producers have upped production as the Organization of Petroleum Exporting Countries (OPEC) prepares to finalize the term of an output freeze by the end of this month.
Related: Russia And Iran Sign Flurry Of Energy Deals, What’s Next?
Members within the exclusive club have also begun maximizing output, pushing prices down while exacerbating the current oversupply. Elsewhere, Canada, Russia and Brazil have also decidedly ignored calls by OPEC-member Venezuela to turn down production.
Lee added that up to 10 ships had also been commissioned to hold oil near the island nation of Singapore, presumably to allow the country to profit from low oil prices.
During periods of high volatility, traders sometimes commission tankers to hold oil until prices jump up one to two dollars so that the cargo can be sold at a higher profit. This process is called contango.
Data from Genscape Inc. suggests that likely cause of the uptick in tanker storage is not contango, according to Bloomberg.
“The big question is whether it’s contango or whether it’s a lack of physical land-based storage” that’s caused the storage buildup in Northwest Europe, Lee, who works out of London, said. “It seems to be the latter at the moment.”
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…