Build in Floating Storage Seen as Another Sign That Market Rebalance May Not Be Forthcoming

The reported floating storage build is still less than a 105 million barrel peak last June.

Another potentially disturbing sign that the oil market may not be as close to rebalancing as some experts insist is the disclosure from Tankers International that 14 to 16 Aframax-class tankers are storing as much as 9 million barrels of crude in northwest Europe, possibly due to lack of on-land capacity.

Bloomberg, which obtained the information from the supertanker operator, notes that standard cargoes are normally almost 600,000 barrels; it also revealed via a survey that traders began looking for profit at sea again earlier this month, and Tankers International at the time said between five and 10 ships had been chartered to hold oil near Singapore.

Oystein Berentsen, managing director for crude at trading firm Strong Petroleum, said, "There is still a significant overhang of oil ... There is floating storage in and around Singapore, and (South) Korean storage tanks are full."

As troubling as the volume of oil currently stored offshore may be, shipping data compiled by Thomson Reuters Supply Chain and Commodities Research reveals that the global volume of floating storage was 56.6 million barrels in the week to November 4 compared to a 105 million barrel peak last June.

Still, the current volume strongly puts into question the validity of statements coming from many sources that a market rebalance is either close or has already been achieved, and it is kindling hope that the impending Organization of the Petroleum Exporting Countries (OPEC) talks in Vienna will result in its oil production cutback deal being ratified – even though the cutback would be a paltry 32.0-33.0 million bpd instead of September's record output of 33.6 million bpd.

Berentsen warned, "If OPEC cannot achieve a good agreement ... we could see a significant drop in oil price to the mid $30's."

That could well be the case, considering Indonesia, Iraq, Iran, Nigeria, and Libya have either directly or indirectly shown no interest in abiding by OPEC's objectives.