History’s largest oil glut to top world storage

The largest oil supply surplus the world has ever seen in a single quarter is about to hit the global market from April, creating an imbalance of around 10mn b/d.

According to analysis by Rystad Energy, global storage infrastructure is in trouble and will be unable to take more crude and products in just a few months. The market analyst’s current liquid balances show supply surpassing oil demand by an average of nearly 6mn b/d in 2020, resulting in an accumulated implied storage build of 2bn barrels this year.

Rystad’s analysis suggests that the world currently has around 7.2bn barrels of crude and products in storage, including 1.3–1.4bn barrels currently onboard oil tankers at sea. It estimates that, on average, 76% of the world’s oil storage capacity is already full.

‘There is essentially no idle storage capacity available on tankers, as Saudi Arabia and other producers might have already wiped out the available population of very large crude carriers (VLCCs) for March and April 2020,’ it says. The company’s data shows that the theoretical available storage capacity at present [March 2020] is just 1.7bn barrels onshore for crude and products combined. Using its estimate of an average of 6mn b/d of implied oil stock builds for 2020, in theory, it would take nine months to fill all onshore tanks. However, in practice, the ceiling will be hit within a few months due to operational constraints, it warns.

‘The current average filling rates indicated by our balances are unsustainable. At the current storage filling rate, prices are destined to follow the same fate as they did in 1998, when Brent fell to an all-time low of less than $10/d,’ says Paola Rodriguez-Masiu, Rystad Energy’s Senior Oil Markets analyst.

Floating storage normally uses VLCCs, which can carry about 2mn barrels. Rystad estimates that there are about 802 VLCCs active globally, with a combined capacity of 250mn deadweight tonnage (dwt), capable of collectively storing 1.8bn barrels. The entire global fleet, including smaller Suezmax and Aframax vessels, is estimated to have a combined capacity of 630mn dwt, or 4.6bn barrels.

However, to keep oil flowing between regions, a ballast of around 50% is necessary as cargos often need to travel with no cargo to the destinations where they pick up oil, meaning that at any given time around half of the world's fleet is booked traveling to consumer destinations, while the other half is empty on their way to pick up oil. This reduces the number of available vessels to about 57, says the market analyst.

In addition, the workable available capacity is significantly lower as many of these vessels are under long-term charter deals or locked in ownership agreements, such as Cosco vessels with PetroChina. Waiting time at ports and repairs further shrinks the workable available capacity.

‘Due to the above-mentioned factors, using supertankers to float oil offshore might not be a viable option this time, as the planned OPEC+ output hike has not only limited the workable available vessels but also caused a surge in tanker freight rates,’ states Rystad. ‘The cost of renting a VLCC on the spot market has risen from about $20,000/d [in February 2020] to between $200,000 and $300,000 [in March], depending on destination.’

‘We find that liquid supply will have to be reduced by around 3–4mn b/d compared to the current production planning to bring the implied stocks builds closer to 2–3mn b/d for 2020, which is the level of implied stocks build that we find sustainable in the short to medium term,’ Rodriguez-Masiu concludes.

Figure 1: Global available storage capacity by region and type, in bn barrels
Source: Rystad Energy research and analysis, IEA