Oil traders are in difficulty to find enough vessels, wagons, caves and pipelines to store fuel while storage facilities are overflowing due to the coronavirus crisis.
In recent days, dozens of oil tanker ships have been reserved to store at least 30 million barrels of jet fuel, gasoline and diesel, which serve as floating storage. Marine warehouses are more expensive and technically complex than land-based storage. It is difficult to measure the world’s total oil storage capacity, but signs are showing that the limit has been reached.
Traders and transport sources stated that approximately 130 million barrels of crude oil are currently stored in the floating warehouse.
OPEC, Russia and other major producers have made an agreement to cut production by only 10%, and will not come into operation until May.
Oil producers, refineries and traders are turning to more unusual tactics such as storing crude oil and fuel in wagons or unused pipelines in the northeastern US. In the U.S., land storage tanks are mostly reserved for local refineries that use wagons to store petrol and diesel, as well as crude oil.
Europe’s northwest treatment and storage center still has space to be filled, but industry experts say most of the remaining capacity is already booked. Salt caves in Sweden and other Scandinavian countries are already either full or fully booked.
Tank operators demand premium based and longer term rentals, rents of up to 24-36 months are requested instead of the usual term of 12 months.
With the increase in market supply, LCOc1 oil prices fell to their lowest levels in twenty years. This week, Western Texas Intermediate (WTI) took an unprecedented dive into the negative zone, so producers without storage facilities had to let their product change hands by paying to those who could store it.
The refined product market is more flexible than crude oil and there is still a margin in trade.
Talented investors create new storage options. According to the data, tanker ships carrying at least 1.5 million barrels of diesel have been directed from Europe to the New York region to drop anchor in recent days.
However, many refineries are supposed to lower or stop production in some cases, as there is no longer a place to store the crude oil to be processed or the products refined.