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Oil glut puts strain on storage

Created:

6 May 2009

Written by:

Martin Li

Plummeting demand has triggered a glut of oil that producers are struggling to store. With the price of oil for immediate delivery standing well below its price for future consignment (a situation known as a 'contango'), oil companies and investors are stashing oil in the hope of making a profit when global demand picks up again. The problem is that with the world awash with oil, companies are running out of places to store output.

Rotterdam is Europe's largest port and refinery centre, with land-based storage for an estimated 75m barrels of oil. However, its tanks are believed to be nearing capacity, leaving inbound tankers with nowhere to discharge their stocks and effectively forced to serve as expensive floating storage vessels.

Many tankers have been forced to drop anchor outside the port (I saw lines of tankers moored off the Dutch coast during a recent flight to Amsterdam) with others lying idle off the coasts of Texas, Nigeria and southern England. Some 30 to 50 supertankers, each carrying around two million barrels of crude, are now believed to be serving as floating storage, together with a similar number of smaller vessels carrying refined products. That's around 100m barrels of oil, more than enough to satisfy one day's total global consumption.

The good news is that the world isn't yet running short of floating capacity. According to a spokesman at Frontline, the leading tanker company, there are over 500 large tankers globally, able to provide plenty more floating capacity before producers really need to worry.

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