The Oil Storage Waiting Game

oilbarrel.com (01/04/2010)
"The sight of crude oil tankers sitting off the Suffolk shoreline is all too common for residents of the old-fashioned seaside town of Southwold.

For some visitors, the fully laden ships, waiting for oil prices to strengthen, are quite a spectacle; others fear the potential environmental catastrophe should things go wrong.

But it is not a phenomenon common only to quaint English coastal resorts. Tankers all over the world are now being used for crude oil and products storage, holding their valuable cargo until fuel prices start to climb—an event many forecast for next year on the hopes of a sustained global economic recovery.

Earlier in 2009, it was estimated that up to 100 million barrels of crude oil was stored offshore—more than the 85 million barrels consumed worldwide each day. Today's figure is thought to be roughly half.

The practice has been going on for years but accelerated in early 2009 when oil prices were languishing and oil companies were scratching around for ever-cheaper tanker storage capacity, biding their time before the market picked up.

Using cheap tankers to store oil in order to get better returns in the future may infuriate motorists but it also makes commercial sense to those pulling the strings.

How much tankers continue to play their part in providing temporary storage options remains to be seen but it may be an important marker for the oil market during 2010.

Oil storage will slump to 40 million barrels in six months and 19 million barrels in a year, from about 50 million barrels now, according to a Bloomberg survey published at the end of 2009.

The survey showed that oil product storage will also fall to 69 million barrels in six months and 29 million in a year, from 98 million now. The numbers are going down but they are still significant and in a market characterized by uncertainty—with the global recovery in 2010 far from definite yet—liable to change."

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