With Land Depots Full, Oil Companies Turn to Tankers

Oil companies booked tankers to store as many as 9 million barrels of crude in northwest Europe amid signs that space in on-land depots is filling up, a ship-operator said.

According to Bloomberg, the glut could get bigger still, given the region is scheduled to load the most cargoes in the past four and a half years next month.

There are 14 to 16 Aframax-class tankers now storing crude in the region, Jonathan Lee, chief executive officer of Tankers International, operator of the world’s biggest pool of supertankers, said on Friday.

Standard cargoes are normally almost 600,000 barrels. Lack of on-land capacity to hold the oil is the most likely cause of the buildup, he said.

North Sea producers are among a long list of suppliers adding barrels just as OPEC prepares to try and eliminate a surplus. Pressure on the exporter club is piling up because its own members are pumping like never before while nations outside the group including Brazil, Kazakhstan, Canada and Russia are producing more than ever or pumping from new fields.

Traders began looking for profit at sea again earlier this month, according to a Bloomberg survey, 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.

Those ships are the industry’s biggest supertankers, holding 2 million barrels a piece. The vessels in the North Sea would normally carry about 70% less oil.

Oversupply in the oil market has caused a key oil-price spread that denotes the scale of any surplus to balloon. The difference in the price of January and February Brent contracts rose to $1.18 a barrel this week, the widest since April 2015, excluding days when the price expires.

When the month-on-month discount gets deep enough, it sometimes rewards traders to hire ships, keep hold of the oil, and sell it at the later price, because the gap more than covers the cost of booking a vessel. Other times, there is just no space to unload, forcing vessels to wait.