Port congestion, low rates buoy floating storage

A lingering oil glut, falling chartering rates, and increasing Chinese port congestion are keeping global floating storage volumes more than triple the norm, despite recent discharges of sea-stored Atlantic basin crude.

The volume of oil held in tankers that have been sitting for seven or more days is at 249mn bl, down month-over-month by 6pc, but still up more than three-fold over pre-pandemic levels, according to oil analytics firm Vortexa.

Rising wait times along the Chinese coast — where nearly 60 crude tankers sit in floating storage — has mitigated the combined effect of reduced wait times in Latin America and recent discharges of crude from the US and North Sea on global floating storage levels.

While recovering oil demand in some parts of the world has caused some traders to pull oil out of floating storage, lower freight rates resulting from weak oil export demand have spurred some traders to add more tankers into floating storage in other regions, such as northwest Europe and west Africa. Trading firm Hartree, for example, this week capitalized on a weaker freight market to fix a long range (LR2) tanker to store two oil product cargoes the firm has been holding in northwest Europe on two medium range (MR) tankers since early June.

Utilization of tankers fixed with storage options

The share of tankers chartered with floating storage options that traders actually use for storage has held largely steady in recent months, despite signs of recovering oil demand. The utilization level of these 303 oil tankers rose slightly month over month from 62 to 65, according to the Argus floating storage bookings database. The remainder of these tankers remain out of floating storage, either plying voyages or being re-leased on the spot market to other traders.

The 65 of these tankers in storage now include 13 very large crude carriers (VLCC), six Suezmaxes, and eight Aframaxes on the dirty side, and one VLCC, two Suezmaxes, 16 LR2 tankers, 10 long range (LR1) tankers, eight MR tankers, and one handymax on the clean side.

Many of these dirty tankers in floating storage are located in the US Gulf coast, the Mediterranean, and Asia-Pacific. The oil-storing clean tankers are concentrated largely in northwest Europe, the Mediterranean, and Singapore.

Oil demand, which reached its low point in April, will be key for determining when de-stocking will accelerate, said shipowners, who expect floating storage to unwind by the end of the year.

The return of the vast number of tankers to the spot market as a result of the de-stocking is likely to counteract any upward pressure that recovering oil export demand could have on spot freight rates, said shipbroker SSY.

By Nicholas Watt