As many as 35 tankers with a combined capacity for 65 million barrels of crude are sitting idle in the Strait of Malacca, Malaysia, Reuters data has revealed, lending credence to the worry that OPEC's efforts to rebalance the market with their production cut has failed.
The number of tankers now ideal in the Strat of Malacca is up from 25 tankers three weeks ago, and about 30 in the middle of March.
Reuters reported the data amid sliding oil prices, which are now below US$50 a barrel on growing worry that no extension by OPEC could deal with the global oversupply quickly enough.
In morning trade in Asian markets, Brent crude was at US$48.41 a barrel, and WTI was trading at US$45.53. These are levels last seen before OPEC announced its agreement with 11 non-OPEC producers to take off 1.8 million barrels off daily crude oil supplies.
What's more, Morgan Stanley said in a note that in the first quarter of the year, shipments of OPEC oil to destinations across the world actually went up in the first quarter of the year by as much as 700,000 bpd. Yet it's not just OPEC oil that is clogging the Strait of Malacca.
The tanker accumulation in the strait, which is the second biggest global oil chokepoint with daily shipments of some 15.2 million barrels of crude, is indicative of how persistent the glut has been, but also of how fast global production is growing. The oil in these tankers, Reuters notes, is not just from OPEC - there is crude from Venezuela, the U.S., and Europe, as well.
Related: All Eyes On Saudi Arabia As OPEC Begins To Unravel
This highlights the gravity of the oversupply problem - demand is still lagging behind supply, which is expanding too quickly for storage facilities to cope. As one trader quoted by Reuters explains, "Many either don't have storage facilities at home, or it is full, so they send it here (to Malaysia), close to the big Asian markets in the hope that they can deliver at a better price later."
Judging by output developments in the U.S., where daily output hit 9.2 million - and even 9.3 million, according to some traders - and elsewhere, notably in Nigeria and Libya, which were exempted from the OPEC agreement, better prices are a remote possibility.
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. More
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