Oil sold out of storage in Asia

singapore — Traders are selling oil held in tankers anchored off Malaysia, Singapore and Indonesia in a sign that the production cut led by the Opec is starting to have the desired effect of drawing down bloated inventories.

Yet in the short-term, the crude released from tankers will weigh on markets and possibly undermine the Opec’s goal of achieving a balanced market by mid-2017.

The Organisation of the Petroleum Exporting Countries and other producers outside the group, including Russia, announced late last year that they would cut output by almost 1.8 million barrels per day during the first half of 2017, looking to drain a glut that pulled down prices from over $100 per barrel in 2014 to around $56.50 currently.

“The Opec’s strategy is targeting inventories — given the scale of the overhang, the market won’t rebalance in six months — we expect an extension into [the second half of 2017],” said Energy Aspects analyst Virendra Chauhan.

As the Opec’s cuts start to leave some demand unmet, a hefty 6.8 million barrels of crude has been taken out of tanker storage from Linggi, off Malaysia’s west coast, in February, shipping data in Thomson Reuters Eikon shows. An additional 4.1 million barrels and another 1.2 million barrels have been taken out of storage on tankers in Singaporean and Indonesian waters, the data shows. In the short term, the flood of crude from floating storage will add to supplies coming into Asia from as far away as the Americas and Europe. In the longer-term, however, clearing oil out of inventories like tankers is part of the Opec’s goal to rebalance markets.

“Inventories will continue to decline driven by the combination of production cuts and the strong demand growth,” US bank Goldman Sachs said last week in a note to clients, adding that it expected Brent prices to rise slightly in the second quarter, to $59 per barrel.

Traders charter supertankers like very large crude carriers, in which they can store up to two million barrels of oil for extended periods of time, when a market situation known as contango is in place, with prices for later delivery higher than those for immediate dispatch.

The January to June 2017 contango in the forward curve was almost $3 per barrel, compared to a June premium of under half a dollar now. —

Inventories will continue to decline driven by the combination of production cuts and the strong demand growth Goldman Sachs