Traders stored an estimated 160 million barrels of oil on board due to the situation caused by the collapse of demand caused by the coronavirus. This amount is almost twice considering the level of two weeks ago.
The organization of the producers, including Petroleum Exporting Countries (OPEC) and Russia approved a record production cut of 9.7 million barrels a day or almost 10% of global supply to support prices and reduce excess of supply in May.
Traders, who see that it will be the largest oil abundance in history, trying to take advantage of the situation. After the process related costs were added above the purchased price, they entered the race to find a warehouse on land and at sea in order to maximize the margin to be obtained from the sale.
According to sources, oil kept in floating tanks in tankers is said to have reached at least 160 million barrels, including 60 supertankers, each known as large crude oil carriers (VLCCs) capable of carrying 2 million barrels each. This is an unprecedented time in the history of tankers.
It is reminding the levels of 2009, close to this when over 100 million barrels of crude were stored in floating tanks. Locations are the areas where major oil centers are usually located, such as the US Gulf and Singapore.
The crude oil market is currently traded in the market known as contango. Futures prices are higher than current prices. This type of market structure encourages traders to store in hopes of selling them later to make a profit.
There are over 770 VLCCs in the world and analysts estimate that 100 to 200 super tankers can be deployed for floating storage in the coming months.
The virtual look of the tanker demand may hurt when this abundance of inventory takes its final fall. However, floating storage will unfortunately remain the only way out for such an unmatched production and consumption ground.