Global floating storage overhang cut to 8-month low

The overhang of oil stored at sea compared to previous-year levels has dropped to just 20pc of what it was during its peak in May, as cheaper on-land storage becomes available and port congestion in China continues to steadily clear.

The volume of oil being stored on tankers for at least seven days has fallen to 201mn bl, just 50mn bl above last year's figure on the same date and its lowest level since 6 April. Floating oil storage's most recent peak was 14 May, 374mn bl, which was 249mn bl above the 14 May 2019 figure, according to Vortexa.

Even though a new wave of Covid-19 cases is stalling the oil demand recovery, with trading firm Trafigura slashing its global oil demand projection by 2.5mn b/d, crude production cuts from Opec+ appear to be preventing the type of brimming land-based storage that spurred oil traders to look to the more costly storage option of oil tankers earlier this year.

Traders are opting to use the tankers already booked on such charters for standard voyages instead of storage.

The number of tankers booked on short-term time charters that are actually in floating storage has fallen to 36 compared to its peak of 78 on 14 July, according to the Argus floating storage bookings database. Most of the around 300 tankers currently employed on short-term time charters are back in the spot chartering market or are transporting cargoes for the time charterer.

Another factor dropping stored-at-sea oil volumes is the steady clearing of port congestion in China. The number of very large crude carriers (VLCCs) waiting to discharge crude in China has fallen to 20, compared to 31 in July , according to Vortexa, as the pace of Chinese chartering slowed after the frenzy that saw Chinese traders capitalize on low crude prices in April.

Floating storage resurgence unlikely Energy traders are largely staying away from the short-term time chartering market despite depressed rates, suggesting a floating storage rebound is not imminent. Traders have booked only five VLCCs, the Ellinis , Hunter Idun , Nissos Kythnos , DHT Redwood , and Desh Ujaala on short-term time charters since the beginning of October at an average rate of $29,000/d.

The new short-term charters do not necessarily represent an increase in floating storage demand, but in some cases act as extensions of previous floating storage-eligible charters. For example, last month's one-year charter to Unipec of the Nissos Kythnos VLCC comes immediately after the conclusion of the ship's previous short-term time charter at $85,000/d, also to Unipec.

Further dampening the prospects for a rebound in floating storage charters is Opec+ countries' willingness to extend crude production cuts in January of next year. Such a production cut extension "could be envisaged" for the first half of 2021 if demand continues to lag, said Opec president Abdelmadjid Attar.

It was the Saudi-Russia crude price war combined with uncertain oil demand because of the Covid-19 pandemic that caused floating storage to surge in April .

By Nicholas Watt

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