Floating Oil Storage Surge Puts Market Balance on Edge
A shadow fleet is quietly swelling across the world’s oceans, packed with sanctioned barrels from Russia, Iran, and Venezuela. For now, those tankers have kept to the sidelines of the global market—but the sheer scale of crude idling offshore could soon jolt prices, depending on whether the oil ever finds a buyer.
Of course, Russia’s oil shipments abroad have been in the spotlight over the past few weeks, as the media rush to report how Chinese and Indian buyers are canceling orders and switching to Middle Eastern and American oil until they find a way to go around the sanctions to resume buying of discounted Russian crude.
In the meantime, however, Iran appears to have run into difficulties trying to export crude oil to its biggest—and pretty much only—oil client. As a result, Iranian barrels in floating storage have gone up quite substantially as well. Kpler reported recently that between August and November Iranian oil in floating storage swelled twofold to top 36 million barrels while deliveries to Chinese buyers have declined to a rate of less than 1.2 million barrels daily, from an average 1.44 million barrels daily earlier in the year.
In Asia, oil in floating storage soared by 20 million barrels over the past two months, to reach a total 53 million barrels, Reuters reported earlier this month, citing Kpler data. A lot of that oil came from the three sanctioned oil producers: Russia, Iran, and Venezuela.
“The increase we see in shadow crude volumes in Asia is explained by a high volume of these barrels at sea, and a difficulty in digesting all the arrivals in the Shandong independent refineries in China due to high inventories and a lack of remaining import quotas,” an analyst from Braemar told the publication.
Data from other ship-trackers suggest the amount of oil in floating storage could be even higher. OilX, a division of Energy Aspects, calculated oil in floating storage in Asia had gone up to70 million barrels at the end of October from some 50 million barrels in the middle of the month, in other words adding 20 million barrels over 14 days.
Vortexa has calculated the amount of Iranian crude at sea at a total 161 million barrels, both in storage and in transit, which is a 22.5-million-barrel increase from the end of September. The analytics company also saw Venezuelan crude on water at 72.3 million barrels, up by some 6.6 million barrels from the end of September.
These barrels of sanctioned oil, Bloomberg reported this week, could become problematic for prices because they represent a significant chunk of global supply. If they find buyers, one way or another, this would aggravate the supply situation which most analysts see as excessive. On the other hand, if all these barrels remain stranded at sea, as it were, it would have a positive effect on prices that many probably do not expect.
Bloomberg also cited floating storage data from OilX, Vortexa, and Kpler to report that oil from Russia, Venezuela, and Iran accounts for between 20% and 40% of the strong increase in barrels on water since August. “The fate of all that crude on water, affected by sanctions or not, will go a long way to shaping how oil prices move over the next few months,” the publication wrote, citing traders.
The warning echoes a remark made by the chief executive of Gunvor, who said earlier this month that oil in floating storage was running at record rates but it was helping keep the global oil market relatively balanced. “This is unprecedented, the size of that. Therefore, obviously, if all sanctions would disappear, this market would clearly be quite oversupplied,” Torbjorn Tornqvist said at the ADIPEC energy conference in Abu Dhabi last week.
The International Energy Agency poured some fuel on the oversupply flames on Thursday as it reported that global oil supply had swelled by 6.2 million barrels daily since January. Even though production was on the decline, down by 440,000 barrels daily in October, the IEA said, there was a supply overhang. Oil on water was up by 80 million barrels in September, the agency also reported, contributing to a 77.7-million-barrel increase in observed global inventories.
Overall, the message from analysts seems to be that the oversupply is here, and it will keep pressuring prices. Yet if those sanctioned barrels cannot reach buyers, things may yet change, especially as producers dial down on the growth because of weaker prices. Luckily for consumers of oil and oil products, sellers of sanctioned barrels usually find ways to reach buyers, so the chances of a strong and sudden rebound in oil prices are currently rather slim. If demand turns out stronger than presumed by the IEA and other forecasters, prices may well rebound before sanctioned oil sellers find their way back to buyers.
