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Page added on April 13, 2016

Huge Oil Supertanker Lines Forming “World’s Biggest Traffic Jam”

“It may be the world’s biggest traffic jam.”

– Reuters

Last week we revealed what we thought was a “shocking photo” of nearly 30 oil tankers caught in a traffic jam off the Iraqi coast, an indication of just how much excess oil is currently parked offshore.

To be sure, the record offshore storage is a problem because with the front-end contango collapsing, DB warned just several weeks ago when comparing the current level of floating storage (157.3 million barrels) versus that in early February (126.6 million barrels), that there may be an additional 31 million barrels of inventory to be drawn down between now and the next inventory trough over the next several months. It calculated that “depending on the duration of drawdown (three months or six months) this could mean anywhere from 165-330 kb/d of incremental supply.”

But the photo above, meant to do DB’s thesis justice, was nothing in comparisons to what Reuters would reveal today.

Because as ports struggle to cope with a global oil glut, huge queues of supertankers have formed in some of the world’s busiest sea lanes, where some 200 million barrels of crude lies waiting to be loaded or delivered, Reuters reports today.

The vessels, filled with oil worth around $7.5 billion at current market prices, would stretch for almost 40 km (25 miles) if formed up in one straight line.

Something not quite so theoretical, and yet almost identical taking place right now, is shown in the photo below, which shows VLCC supertankers traveling between India and Southeast Asia, courtesy of Reuters.

And while the market is for now clearly ignoring the unprecedented accumulation of oil in offshore storage, a bearish indicator of just how much oil will hit markets if and when prices continue rising or when collapsing contango makes it no longer economic to hold for many it is an all too real daily existence. As Reuters reports, one captain with more than 20 years at sea said his tanker had been anchored off Qingdao in northeastern China since late March and was unlikely to dock before the end of this week, a frustrating delay of more than three weeks.

“We’ve stayed here a long time,” he said, requesting anonymity because he is not authorized to speak to the press, but added that another kind of jam was helping to alleviate the boredom. “We have a piano, drums, crew who play guitar – they are not professional but they are coming good. We have more than 1,000 DVDs so there is no need to watch the same one 20 times.”

As we first showed last week in the photo above, the worst congestion is in the Middle East, as ports struggle to cope with soaring output available for export.

It’s not just the Persian Gulf though: shocking sights can be seen in in Asia, where many ports have not been upgraded in time to deal with ravenous demand as consumers take advantage of cheap fuel.

“It’s the worst I’ve seen at Qingdao,” said a second tanker captain waiting to offload at the world’s seventh busiest port, adding that his crew was killing time doing maintenance work.

Ralph Leszczynski, head of research at shipbroker Banchero Costa, in Singapore, said the snarl-up was “one of the worst tanker traffic jams in recent years“. The cause was “a perfect storm of red-hot demand from new entrant refineries in China and port infrastructure in the Middle East and Latin America that is unable to cope”, he said.

Perhaps in retrospect it is not so much “ravenous demand”, as soaring supply with no place to deliver the oil to. According to ship tracking data, 125 supertankers with the capacity to carry oil to supply energy-hungry China for three weeks, are waiting in line at ports. The combined daily cost is $6.25 million, based on current ship hire rates of around $50,000-a-day. It is also why Swiss energy trading companies such as Vitol and Trafigura have had a bumper year, one which has offset their pure-play commodity exposure losses.

“It messes up port schedules, catering schedules, crew schedules and the schedules of delivering the transported goods,” said one shipping logistics manager in Singapore. “It also raises the cost for pretty much everyone involved.”

For dealers, a month-long delay can turn a profitable trade into a painful loss. “If you’ve bought 100,000 barrels of crude at $40 (a barrel) that’ll cost you $4 million,” said one oil trader. “And if you’ve calculated another 1.5 million bucks for a month’s worth of shipping, but you end up paying double that because your ship is stuck in port congestion, then that can seriously mess up everything from your schedule to your arbitrage profitability.” In other words, for every Vitol that is making a killing on the contango, someone is losing.

Here Reuters gets to the heart of the matter with the explanation why oil shipping lanes now look like parking lots:

“at the heart of the congestion is an unprecedented rise in global oil production… as soaring output has pulled down oil prices by as much as 70 percent since 2014. That has helped spur demand from China’s independent refiners, freed from government restrictions on imports just last year and gorging on plentiful crude, putting extra pressure on ports.”

The unprecedented number of ships at sea filled with cargo and just waiting for the signal to offload is also causing congestion between the main producer and consumer hubs.

Almost all supertankers heading to Asia pass by Singapore or adjacent facilities in southern Malaysia, the world’s fuel station for tankers and also a global refinery and ship maintenance hub.

Shipping data shows that some 50 supertankers are currently anchored in or close to Singaporean waters for refueling, maintenance or waiting to deliver crude to refineries or be used as floating storage.

This can be seen in the following Reuters photo of oil tankers lining up on the eastern coast of Singapore.

As well as the following Marinetraffic map.

For sailors stuck onboard this “parking lot” of anchored tankers, one of the biggest problems is simply wiling away the time, Reuters adds.

“Some of the ships are well-equipped for their crews, but many aren’t,” said a Filipino sailor who left a very large crude carrier (VLCC) in March after a voyage to China. “On my last one, we had no regular internet … only an old TV with a couple of old DVD movies. The food is terrible and while waiting to offload we did pretty hard maintenance work. The sort of stuff you can’t do when the engine is running.”

Captain Alan Loynd, who spent more than 25 years at sea and is now a marine consultant, said long port delays were rare, but could be tedious and isolating when they happened.

And unlike in previous eras, having a couple of beers to break the monotony is usually out of the question.

“The chances of getting ashore are remote,” he said. “A lot of ships are now dry, so there’s no alcohol on board.”

Unfortunately for Capitan Loynd and so many of his peers, the dry period will last a lot longer because as even more supply is unleashed, as land-based storage fills up and as every incremental producer rushes to stash millions of barrels on whatever ships they can charter just to let them float at sea.

Unless of course, the short-end contango flips and becomes a huge cash burn for the owners of all that oil to keep all their not so precious cargo seaborne. In that case those tens of millions of barrels will promptly find their way to the market, which will then unleash an unprecedented period of wholesale dumping as the liquidation scramble to find a buyer at any price, pushes oil prices to fresh new lows.

zerohedge

39 Comments on "Huge Oil Supertanker Lines Forming “World’s Biggest Traffic Jam”"

geopressure on Wed, 13th Apr 2016 4:16 pm

This is not news…

Go Speed Racer on Wed, 13th Apr 2016 7:31 pm

We’re doomed. So many tankers. And when they are all ordered perfectly into a linear row, the magnetic field will be polarized, and that could take out the global GPS.

Anonymous on Wed, 13th Apr 2016 7:44 pm

I thought the invisible hand was supposed to automatically and seamlessly correct any ‘imbalances’ in the ‘market’. So what went wrong….

Plantagenet on Wed, 13th Apr 2016 8:21 pm

What went wrong is that we’re in an oil glut. More oil is being produced then the global economy can consume. And despite the boasting from the White House about how great the economy is, the reality is that US and global GDP aren’t growing fast enough to work through the excess oil and end the oil glut anytime soon.

Cheers!

Anonymous on Wed, 13th Apr 2016 9:34 pm

And when you wake up tomorrow, you’ll still be an idiot, you realize right?

sidzepp on Wed, 13th Apr 2016 10:22 pm

And the price of oil is on the rise. Guess they can’t get the ships to the refineries fast enough.

twocats on Wed, 13th Apr 2016 11:48 pm

But I thought the glut was just a smokescreen for rapidly declining stocks that were only being masked by unloading the SPR as fast as possible? I thought the tanks were supposed to run dry by the end of summer? So these tankers are all photoshopped right?

Boat on Thu, 14th Apr 2016 1:31 am

Going long on oil stocks may be a little premature.

Dredd on Thu, 14th Apr 2016 5:23 am

We haven’t seen the worst of it yet (The Extinction of Robust Sea Ports – 4).

PracticalMaina on Thu, 14th Apr 2016 8:12 am

They’re just trying to drive up healthcare cost on those coastal people by giving em all asthma. I wonder how much of the haze in that photo is from those ships burning heavy oil?

Freightboy1 on Thu, 14th Apr 2016 8:17 am

Congestion is the new contango! At least for tanker hires.

tarzanboy on Thu, 14th Apr 2016 9:17 am

by my estimation, the world crude oil production has be one and half years in over production by 1.5 to 2 million barrels a day, with on shore storage max’ed out at 550 million barrels then there should be about 410 million barrels floating around on the high seas in these VLCC’s

blah on Thu, 14th Apr 2016 11:04 am

Just waiting for a nice cyclone to rumble by.

Davy on Thu, 14th Apr 2016 8:23 pm

More floating oil on the move:

http://www.zerohedge.com/news/2016-04-14/irans-massive-oil-fleet-begins-move-29-million-barrels-depart-iran-past-2-weeks

BUYCH MARTINDELL on Thu, 14th Apr 2016 9:18 pm

IF WE HAVE SO DAMN MUCH OIL , WHY IS THE US PRODUCING ETHANOL, WHICH GETS LESS MILEAGE THAN STRAIGHT GAS????? PLUS IT SCREWS UP MY HOT ROD SEE SEMA.COM

Dooma on Fri, 15th Apr 2016 8:14 am

A traffic jam in the ocean…

What next, sea rage?

Those ships have VERY loud horns-it could get ugly if they all honk them.

Dooma on Fri, 15th Apr 2016 8:16 am

They could always play “Battleships” with each other to kill the boredom

GregT on Fri, 15th Apr 2016 9:11 am

“by my estimation, the world crude oil production has be one and half years in over production by 1.5 to 2 million barrels a day, with on shore storage max’ed out at 550 million barrels then there should be about 410 million barrels floating around on the high seas in these VLCC’s”

960 million barrels of oil that nobody wants to use to get their economies back on track, or enough to supply the world until the Monday after next. If ‘overproduction’ is really that high, which may or may not be the case.

shortonoil on Fri, 15th Apr 2016 3:17 pm

“If ‘overproduction’ is really that high, which may or may not be the case.”

Overproduction, or under consumption. In a 150 years the world has never had an overproduction situation that lasted for more than a few months. Maybe something different is happening? Then again most people wouldn’t notice if their TV started doing the Foxtrot with the lounge chair!

antaris on Fri, 15th Apr 2016 5:01 pm

I just had a look at marinetraffic.com and if you want to see some traffic look around Dubai with 278 tankers parked.
Another 21 tankers are underway in the same area.

Boat on Fri, 15th Apr 2016 8:10 pm

short,

No shyt Sherlock. When you can borrow cheap you can buy a big glut. Add to that oil was overpriced before that for 6 years.

GregT on Fri, 15th Apr 2016 8:30 pm

@Kevin,

“When you can borrow cheap you can buy a big glut.”

The reason why you can borrow debt cheap Kevi, is ’cause the central banks are desperately trying to kick start our flailing economies. The reason that world economies are not recovering, is ’cause oil is still overpriced. The reason why there appears to be an oil glut, is ’cause global economies are still in recession. IE, they still have not recovered from the global financial crisis that began back in or around ’07, which was mainly the result of high oil prices.

Boat on Fri, 15th Apr 2016 9:29 pm

Well GreggieT of course I disagree. Expensive oil and making huge profits is what attracted investors in droves. Banks, like with housing jumped on that band wagon.
The reason for the glut is Canada, the US, Brazil and Iraq added about 7 mbpd when the market needed only 5 to stay in balance.
The 1.2 2016 mbpd growth 1.4 2017, 1.7 2018 is well within a normal growth for the world.

makati1 on Fri, 15th Apr 2016 9:41 pm

Boat, how much oil means nothing if there are no buyers. You oily guys are hung up on barrels, not the economy. It is the economy that will end the Age of Petroleum, not the number of barrels left. Have you tried to sell s Mercedes to a person on welfare and food stamps?

LMAO

Boat on Fri, 15th Apr 2016 9:56 pm

mak,

Do the freeway test. Lots of nice cars here in Houston. Cheap gas to. Growth going up every where. Lots of new small cars also.

antaris on Fri, 15th Apr 2016 10:39 pm

Lots of nice cars here in Vancouver driven by 18 year old Asians. I was in Houston last year and you guys have more cars sitting on lots than we have in the whole Province. But something smells bad as my $325,000 house 11 years ago would have gone for $850,000 last fall and now one around the corner with a smaller lot and just less sold for $1,600,000. As I’ve said before, engines blow up not long after they were running their best.

makati1 on Fri, 15th Apr 2016 10:59 pm

antaris, you see the real picture. a few people with a lot of cash, (usually illegal) are trying to find a safe place to stash it. All are buying future trash. In a few years, those houses will be standing empty or be filled with squatters. The expensive autos will be abandoned by the road or in junk yards and their money will be gone. The B/Millionaires will be in the soup lines along with the rest of us, IF they are lucky enough to survive the riots.

Some, like Boat, want to believe that all is well, when in reality, the Black Plague of Debt is riding in on the Black Horse along with Death. Anyone who does not realize that the Four Horsemen of the Bible are already riding the Earth, is blind. There are a lot of blind sheeple in America.

antaris on Sat, 16th Apr 2016 12:05 am

Mak, the cash doesn’t make sense other than shipping it in a container. Electronic is probably how it is done , then what little faith I had in that disappears. In the greater Vancouver area I am guessing that there are close to 40 tower cranes working to build apartments. I have not seen the total area but have counted over 30 cranes. This is on top of previous apartment towers built but no fully occupied.

Apneaman on Sat, 16th Apr 2016 12:08 am

Boat, growth in what? Bankrupt frackers? What are we up to? 60 I think it is and 1 suicide criminal CEO.

Boat you keep counting barrels and I’ll count bankruptcies.

Goodrich Petroleum Files For Chapter 11 Bankruptcy Protection
Oil company joins many others in the industry seeking debt-for-equity swaps

“….about 60 North American oil and gas companies have filed for bankruptcy, involving nearly $20 billion in debt, according to the law firm Haynes & Boone.”

http://www.wsj.com/articles/goodrich-petroleum-files-for-chapter-11-bankruptcy-protection-1460714745

Oh let’s not forget…

World’s largest coal producer files for bankruptcy protection
Peabody Energy’s decision seen as sign that fossil fuel is threatened by tightening environmental regulation

http://www.theguardian.com/environment/2016/apr/13/worlds-largest-coal-producer-files-for-bankruptcy-protection

Your right boat – growth all over

Boat on Sat, 16th Apr 2016 1:03 am

ape,

Ex Fed Greenspan calls it a Darwinian flush. Stronger companies will buy the bankrupt ones. Ever changing and evolving.

Someday renewables will push out nat gas like nat gas is pushing out coal. It ain’t rocket science. When you gonna post box store closures as business like Amazon.

Boat on Sat, 16th Apr 2016 1:03 am

ape,

Ex Fed Greenspan calls it a Darwinian flush. Stronger companies will buy the bankrupt ones. Ever changing and evolving.

Someday renewables will push out nat gas like nat gas is pushing out coal. It ain’t rocket science. When you gonna post box store closures as business like Amazon.

GregT on Sat, 16th Apr 2016 1:16 am

Natural gas is not pushing out coal Kevin, and there are no such things as renewables. More never ending nonsense.

http://www.energytrendsinsider.com/wp-content/uploads/2014/07/Coal-Consumption-1965-through-2013.png?00cfb7

Boat on Sat, 16th Apr 2016 1:57 am

errrrrrr……the ape and I were talking US. Read up. Idiot.

GregT on Sat, 16th Apr 2016 2:05 am

errrrrrr…….. You are typing on an open forum Kevin, and you and Apnea are not talking. You are nowhere near close to being on the same level of understanding that he is, and you have proven to most everyone here, and everyone else around the world that reads this forum, that you are a complete fucking moron. 🙂

makati1 on Sat, 16th Apr 2016 2:07 am

Antaris, did I say that the economy or economists were sane? I can tell you that there have been 100 plus towers going up all over Manila for the last 8 years but are now having difficulty finding suckers to buy them or to rent the condos or offices, even at a low price.

When I came here, they required 20% down and you still had to wait until they were finished, sometimes two years, to move in, meanwhile making payments. NOW they are offering them for zero down, and throwing in cars, trips, etc. to try to sell them AFTER they are built.

Need I remind yuou that big building projects, be they housing developments or condo towers, require years of investments often exceeding millions of dollars, BEFORE the first spade of ground is moved. At some point the decision is to gamble that they can be sold or to take the investment at a loss. Here in Manila, the big banks are the builders/owners for the most part and are playing with the depositors money.

Tower cranes are a sign of the end of a growth cycle/country, not an ongoing one. But, continue to dream and believe what you want. It doesn’t hurt me. I’ve been building my future away from the stupidity of the current oil based economy. Are you?

makati1 on Sat, 16th Apr 2016 2:11 am

To clarify that first sentence: “… that there have been 100 plus towers going up all over Manila for the last 8 years…”

That was the ‘average’ at any one time and adds up to about 4,000+- new towers, each anywhere from 30 to 60 stories high over those 8 years.

makati1 on Sat, 16th Apr 2016 2:12 am

Sorry, one too many zeros…lol. 400+ new towers.

Kenz300 on Mon, 18th Apr 2016 7:32 am