A glut of crude oil and products stored in tankers at sea will take months to clear, although a recovery in global energy demand has reduced the volume compared with a peak hit in May, ship brokers and tanker market watchers said.
As global lockdown measures to fight the coronavirus outbreak are eased, the world begins to consume more crude and refined products – some of which went into floating storage in March and April after demand collapsed by 30 percent and land storage was full.
A further unloading of cargoes on the water will take time as some volume remains under time charter contracts, which can tie traders into leaving their oil at sea for between three to 12 months.
Ship broker Clarksons said 180 vessels with over 200 million barrels of crude were being used for storage globally as of May 29, down from a peak of 290 million barrels in early May.
It added 170 tankers were storing 73.8 million barrels of oil products, down from 100 million barrels in early May.
IHS Markit put crude floating storage at over 175 million barrels at the end of May versus over 180 million barrels in late April.
“There is no doubt that the peak has been reached in May with volumes to start declining from June onwards,” IHS’s Fotios Katsoulas said.
Demand for floating storage was helped by a contango market structure, meaning cargoes for short-term delivery were cheaper than those for later delivery, prompting traders to bet they could resell at a profit when prices recover.
Traders often lock in their potential profits with hedging deals as soon they decide to hold crude offshore. The contango has narrowed, making new floating storage deals unappealing.
Lois Zabrocky, chief executive of tanker group International Seaways, cited reports of between 50 to 70 supertankers storing crude – each of which can carry a maximum of 2 million barrels.
Separately, around 40 suezmaxes – which can each carry up to 1 million barrels – had held cargo onboard for over 30 days.
“At first glance this is a reduced number, but many of the ships that were time chartered have only just loaded their cargoes and whether they trade or store is an open question,” she told Reuters.
“Additional ships are having prolonged waiting time at various ports. For tankers, all of this has occupied around 8% plus of the fleet.”
Source: Reuters (Editing by Dmitry Zhdannikov and Barbara Lewis)