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As Land Sites Fill, Millions of Barrels Stored in Oil Tankers

As Land Sites Fill, Millions of Barrels Stored in Oil Tankers
Amid signs that space in on-land depots is filling up, a ship-operator said that oil companies booked tankers to store as many as 9 million barrels of crude in northwest Europe. Given the region is scheduled to load the most cargoes in 4 1/2 years next month, the glut could get bigger still.
Jonathan Lee, chief executive officer of Tankers International, operator of the world’s biggest pool of supertankers, said that there are 14 to 16 Aframax-class tankers now storing crude in the region. Standard cargoes are normally almost 600,000 barrels. He said that the most likely cause of the buildup is the lack of on-land capacity to hold the oil.

Just as OPEC prepares to try and eliminate a surplus, North Sea producers are among a long list of suppliers adding barrels. With nations outside the group including Brazil, Kazakhstan, Canada and Russia are producing more than ever or pumping from new fields, pressure on the exporter club is piling up because its own members are pumping like never before.
With Tankers International saying at the time that between five and 10 ships had been chartered to hold oil near Singapore, most likely to profit from weak crude prices, traders began looking for profit at sea again earlier this month, according to a Bloomberg survey.
Holding 2 million barrels a piece, those ships are the industry’s biggest supertankers. Under normal circumstances, the vessels in the North Sea would carry about 70 percent less oil.
A key oil-price spread that denotes the scale of any surplus has ballooned due to the oversupply in the oil market. Excluding days when the price expires, the difference in the price of January and February Brent contracts rose to $1.18 a barrel this week, the widest since April 2015.
Since the gap more than covers the cost of booking a vessel, it sometimes rewards traders to hire ships, keep hold of the oil, and sell it at the later price when the month-to month discount gets deep enough which is something that is called contango. Other times, vessels are forced to wait as there just isn’t space to unload. According to data from Genscape Inc., for the time of year since at least 2013, inventories in Amsterdam, Rotterdam and Antwerp are the highest.
“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, London-based Lee said. “It seems to be the latter at the moment.”
Because supplies are being pushed onto the market that were previously unavailable, the Brent price spreads collapsed.
While Nigeria’s petroleum minister said the nation is now pumping more than 2 million barrels a day for the first time since the start of the year, Libya shipped the most oil since late 2014 in October. That is in addition to new supply from Kazakhstan’s Kashagan oil field and Russian output at a post-Soviet record.

Christopher J. Mitchell

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