FULL TANKS AND TANKERS
A stubborn oil glut despite Opec cuts
and prices appear stuck in the low-$50s per barrel range.
The market has not strengthened enough to drain many major storage facilities around the globe — which Opec oil ministers had hoped would be a first step towards rebalancing what has been a buyer’s market since late 2014.
Estimated inventories in industrialised nations totalled 3.025 billion barrels at the end of March — about 300 million barrels above the five-year average, according to the International Energy Agency’s latest monthly report.
Preliminary April data indicated would rise further, the IEA said.
Crude stocks stood at a record billion barrels.
Opec and other non-Opec nations — most notably Russia — are now widely expected to extend production cuts for another nine months, through March 2018.
A panel reviewing scenarios for the producer group’s meeting next week is also looking at the option of deepening the cuts.
The ongoing struggle to thin supplies has forced economists to cut their oil price forecasts.
Bank of America, for instance, last week lowered its 2017 target for Brent crude by $7 a barrel to $54. During the two-year price war started by Opec, about half a billion barrels of crude and refined products fl o w e d i n t o storage facilities as oil prices hit lows of less than $30 a barrel in early 2016.
Much of the inventory build-up came as traders started using storage to make easy money on the widening spread between rock-bottom spot oil prices and substantially higher prices for contracts to deliver the oil in future months.
That price spread — a market structure known as contango — allowed traders to profit even after they paid for expensive storage in facilities such as the Louisiana Offshore Oil Port (LOOP) — the only deepwater US oil port and a major conduit for crude imports — or supertankers parked offshore in Singapore.
Although the storage trade has been less profitable since the Opec production cuts, much of that oil remains in tanks, said Chris Bake, an executive committee member at Vitol, the world’s largest independent trader, during an industry conference last week in London.
“This 550 million barrel-plus inventory build of crude and products that started in 2014 is still very much there,” he said. “How much is going to come out? That is an ongoing debate among all of us.”
From the Malacca Straits in Asia to the ports of Northern Europe and the Gulf of Mexico, drawdowns of global inventories have slowed or even reversed.
In the Amsterdam-RotterdamAntwerp (ARA) region — one of the most expensive areas in Europe to store oil and the benchmark pricing point for fuel — crude is starting to flow back into storage because refiners are “clogged” with oil, an industry source handling deals in that region said.
Refined fuel inventories have also jumped suddenly, with gas oil in tanks in the ARA hub rising to an eightmonth high earlier this month, according to Dutch consultancy PJK International.
Gas oil includes jet fuel, diesel and heating oil.