LONDON • Oil traders are resorting to storing more and more oil at sea amid swelling output in the Atlantic region, a sign the market is far from the kind of rebalancing that Opec would have hoped for when the group set out last year to bring down global stockpiles.
The amount of oil stored in tankers reached this year's high of 111.9 million barrels earlier this month, according to Paris-based tracking company Kpler.
Higher volumes of storage in the North Sea, Singapore and Iran account for most of the increase.
The build-up occurs even as the Organisation of Petroleum Exporting Countries and 11 other nations led by Russia have cut supplies.
Since the beginning of the year, those nations have attempted to trim nearly 1.8 million barrels a day from the market, though higher output in the United States and Africa and sluggish demand in Asia have all helped to undermine their efforts.
"If anything, it shows that Opec cuts still aren't having enough of an impact," Mr Olivier Jakob, managing director of consultant Petromatrix, said of the build-up at sea.
"The pressure is coming from the Atlantic Basin", where there are additional supplies, he said.
Companies including Trafigura Group and Vitol Group have recently chartered older supertankers for as long as eight months, and some of the vessels are likely to be used for floating storage, according to a research note from Pareto Securities on Monday.
As a result of the persisting surplus, spot prices for oil are being pushed lower than those for supplies months and years into the future.
Such a structure, known as contango, can make it profitable for traders to store oil in tanker ships for delivery later, although data compiled by Bloomberg and E.A. Gibson Shipbrokers indicates that is not the case yet.
Floating storage in Singapore has risen by 23 per cent this year and 32 per cent in the North Sea, estimates Kpler.
In the US, crude oil production has been on an upward trend since October and last month, it reached 9.34 million barrels a day, the highest level since August 2015.
Rig counts have increased for a record 22 weeks straight as shale producers have boosted output, according to data from Baker Hughes.
Oil in floating storage has been building at a rate of about 800,000 barrels a day since early last month and continues to increase, they said.
More than 52 million barrels a day have been loaded onto tankers this month, a record since at least 2012, they estimate.
While oil appears to be flowing into floating storage, estimates from E.A. Gibson and exchange data compiled by Bloomberg show that keeping barrels at sea would not normally be profitable at the moment.
For three, six and 12 months, traders would lose money by storing at sea either in the North Sea, the Mediterranean, or Asia.
Floating storage is not viable, Mr David Martin, an analyst at JPMorgan Chase & Co, wrote in a research note.
The backup of crude in the North Sea likely will not clear without it being discounted for buyers in Asia.
"Anecdotal trade reports indicate that although Asian refinery buying has been muted in recent weeks, it is picking up momentum," he wrote.
BLOOMBERG
