Floating oil lake likely to curb future oil prices

LONDON/NEW YORK (Reuters) – Oil companies are storing a record volume of oil at sea in giant tankers as world crude supply outstrips demand, and this floating oil lake is now so big that it is likely to keep a lid on prices for some time.

Shipping analysts say around 100 million barrels of crude and about 25 million barrels of refined products, such as gas oil, are held in fleets of Very Large Crude Carriers (VLCCs) in Europe, West Africa, the U.S. Gulf and off Asian ports.

The volume of oil stored at sea has risen to record levels because the price of oil for use now is well below the value of oil for future delivery — a market structure known as contango, typical of a bear market.

With tanker rental rates low and on-land oil stocks near record levels, it is cheap to store oil at sea, and using ships gives oil traders more flexibility than long-term storage tanks.

The last time floating oil stock levels were anywhere near these levels was in the early 1990s after the first Gulf war. Tanks were drained then into a rising market and traders and analysts say only a rise in demand will clear the stocks now.

Reuters