Gridlocked Tankers, Expiration of Floating Storage Charters Could Signal New Influx of Cheap Oil

Tankers are said to be experiencing delays in loading and unloading crude.

A near gridlock of tanker traffic, and soon to expire charters of floating storage are set to trigger a fresh influx of cheap oil into the market, Reuters reports.

The development is likely to pile more downward pressure on oil and bunker prices that in recent days have in some ports already fallen to below the 10-year lows witnessed in August, as some players are forced to sell their cargoes at cheaper-than-planned prices.

With stored oil now at 3 billion barrels, according to the latest International Energy Agency estimates, tankers are reported to be queuing at major ports for weeks and even months, including 41 in the U.S. Gulf, 20 supertankers in Iraq's Basreh terminal (with 12 day loading delays), and seven aframax tankers outside Rotterdam.

A source at China's Qingdao port told Reuters that one supertanker has been at anchor since August.

With extended discharge and loading times, on-land storage is said to be dwindling, meaning some oil suppliers cold be forced to make cut-priced sales in order to free up space.

At the same time, pressure for cut-price sales is also coming from floating storage charters that are set to expire.

Earlier this year, floating storage was said to have been fixed on a long-term basis to allow for prices to recover enough for the oil to be sold profitably.

More recently, however, tanker storage has been booked on a shorter-term basis, meaning players must either unload now or pay what will likely be increased rates to continue the charter.

"Each minute the clock is ticking, they're losing money," a source was quoted as saying.

"Those holding stocks will either have to dump their cargoes at cheaper prices or pay those higher freight costs," a separate source said.

Eugene Lindell, senior crude market analyst with JBC Energy, said, "We're alarmed; there are growing indicators that it's getting harder to digest this crude."

Meanwhile, the Organization of the Petroleum Exporting Countries is said to be mulling a 1 million barrels per day raise in its production ceiling at its December 4 meeting.