Storage Crisis Worsens for Glut of Crude... by wsj

Storage Crisis Worsens for Glut of Crude… –

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<h3>Storage Crisis Worsens for Glut of Crude Caused by Coronavirus</h3>
During his daily stroll along Southern California’s Seal Beach, film-industry executive Josh Haynie usually sees little but surfers and the occasional marine mammal. These days the vista also includes around 20 oil tankers.
He worries the interlopers could collide with the private yachts that ply these waters. “We are not Galveston, Texas,” he says.
The world may have to get used to oil turning up in unusual places. An enormous glut of crude sparked by the coronavirus pandemic and the resulting collapse in demand has overwhelmed the global distribution system. Oil markets broke down this week as buyers vanished for lack of storage space. At one point, the squeeze was so intense, sellers with oil at a key U.S. delivery point in Cushing, Okla., were paying buyers to take the stuff off their hands.
Prices have since stabilized a bit and were trading Friday afternoon at around $16 a barrel for the U.S. benchmark. But storage at Cushing is on track to be fully in use by mid-May, threatening similar price drops if buyers can’t find alternatives.
The math is unforgiving. The world normally produces 100 million barrels of oil a day. With much of the industrialized world in lockdown to combat the pandemic, the daily demand could fall as low as 70 million barrels.
Global onshore storage facilities totaling 4.4 billion barrels are currently about 65% full, said Antoine Halff, chief analyst at Paris-based commodities-analysis company Kayrros. But he added that as of early April they were filling at a “monster rate” of 10 million barrels a day.
“It’s like when there’s a fire and everyone is rushing through the exit door,” says Mr. Halff. “At current rates, storage could be full within 100 days.”
Absent a market, the oil industry is staring at financial disaster. More than 70 debt-burdened U.S. oil producers are now at risk of bankruptcy, according to oil consulting firm Rystad Energy. Analysts say roughly half of those are in Texas. Key oil producers Nigeria, Algeria, Iraq and Iran are either considering or seeking emergency funding from the International Monetary Fund, while others like Saudi Arabia are scrambling for ways to make savings.
The scarcity of storage tanks and the unprecedented oil crash are directly correlated. Even would-be buyers looking to take advantage of bargains can’t jump because they have nowhere to put their purchases.
“A lack of physical storage is forcing oil-market economics to fall to shut-in levels,” says Jason Bordoff, a former Obama administration energy adviser, who is now the founding director of Columbia University’s Center on Global Energy Policy. “Incredibly low prices that will continue for some time reflect the fact that supply needs to come off the market at an unprecedented rate and volume.”
Offshore oil drillers have begun shutting off wells in the U.S. Gulf of Mexico, and some executives worry that the region’s production may take years to fully recover.
With few storage places on dry land available, producers, traders and buyers are turning to the sea. A cluster of ships brimming with crude sits in the turquoise waters of Hurd Bank off Malta in the middle of the Mediterranean this week. Others float in South Africa’s coastal waters.
That adds to the financial burden. The cost of renting a supertanker is about $4.5 a barrel a month, according to data from Rystad, or $9 million for an average-size tanker holding 2 million barrels.
The volume of oil stored on ships at sea is up 76% from March 1, to 153 million barrels, according to oil-data company Kpler, roughly a day and one-half worth of global production before the crisis.
Homeless oil is turning up in places like Seal Beach, famous for its long wooden pier and prime surfing spots. The armada of about 20 tankers lining the horizon there—they are among at least 35 idle along the U.S. Pacific Coast—have come to the Greater Los Angeles area from ports in Vancouver, Rotterdam and Basra, Iraq, according to ship-tracking firm FleetMon.
As people in the U.S.’s second-largest metropolitan area entered lockdown in response to the pandemic, people left their cars in the garage.

Marathon Petroleum Corp.

’s nearby refinery in Martinez, Calif., temporarily closed. Others, including

Chevron Corp

’s El Segundo refinery, cut back on crude processing.
On the other side of the world, Malta is turning into a popular destination for vessels storing oil. For years, the Mediterranean’s Hurd Bank has been known as a place where illicit oil cargoes can hide in plain sight.
RUSSIA
U.K.
9 idle tankers
U.S.
CHINA
Atlantic Ocean
19 idle tankers
INDIA
Pacific Ocean
BRAZIL
Anchored
AUSTRALIA
Indian Ocean
Moored
Restricted maneuverability
Underway using engine
Constrained by draught
RUSSIA
9 idle tankers
U.K.
U.S.
CHINA
Atlantic Ocean
19 idle tankers
INDIA
Pacific Ocean
BRAZIL
Anchored
AUS.
Indian Ocean
Moored
Restricted maneuverability
Underway using engine
Constrained by draught
Anchored
Restricted maneuverability
Constrained by draught
Moored
Underway using engine
RUSSIA
9 idle tankers
U.K.
U.S.
CHINA
Atlantic Ocean
19 idle tankers
INDIA
Pacific Ocean
BRAZIL
AUS.
Indian Ocean
Anchored
Restricted manoeuverability
Underway using engine
Moored
Constrained by draught
9 idle tankers
U.K.
U.S.
Atlantic Ocean
19 idle tankers
Pacific Ocean
BRAZIL
RUSSIA
U.K.
CHINA
INDIA
AUS.
Indian Ocean
Note: As of April 7
Source: IHS Markit; FleetMon (Malta and California offshore)
Vessels transferring illegal Libyan fuel on its way to Italy have moored in the international waters near Malta. Buyers of disputed Iraqi Kurdish oil have also used the sand bank as a transit point and, according to shipping trackers, Venezuelan sanctions-busters have done the same more recently. A spokesman for Venezuela’s oil ministry didn’t respond to calls seeking comment.
Now mainstream tankers filled with oil originally destined for Italy and Turkey are flocking there, lured by the no-hassle parking space and proximity to Maltese ports, a steady source of food and fuel.
Many of the ships idled at Hurd Bank offer their own tale of the demand destruction currently wreaking havoc in the oil market.
Sitting among the crowd is the Marshall Islands-flagged Front Tiger, which left South Korea on March 1 with 850,000 barrels of jet fuel, just before demand in Europe collapsed amid airline groundings. According to data collected by oil analytics company Vortexa. it stopped 20 days ago offshore Malta waiting for orders.
With most ports refusing to let crews disembark and flights canceled everywhere, Captain B. Murthy and his crew have been spending their free time playing bingo and foosball and singing Bollywood classics on a karaoke system. Now they are wondering when they will make it back home.
From the deck, “I can see a lot of tankers. We are all stuck here,” the captain said in a phone interview. “We don’t know what the next port is.”
Is this just a passing phase or has something fundamental changed in the global oil market?Join the conversation below.
Next to him, Chief Engineer Samir Gulwadi was getting seriously homesick. “When I come back, I wonder if my kids will recognize me,” he says.
Another vessel had arrived with 250,000 barrels of gasoline from Italy—where some regions have been in lockdown for almost two months; one was a Monaco-based tanker laden with refining stock from Russia.
Nearby, there was a Greek tanker that had loaded 580,000 barrels from a Libyan oil platform on March 3. Trader Vitol Group PLC opted to store the cargo rather than try to reselling it, hoping for better prices later, according to a person familiar with the transaction. Vitol declined to comment.
Elsewhere, about 8 million barrels are sitting in South Africa’s Saldanha Bay, a number that is set to double in the coming four weeks, according to Kpler.
In the Caribbean Sea, about 2.5 million barrels are stored in five tankers near Curaçao, according to the data provider. “It’s a hot potato,” said Marcelino de Lannoy, interim managing director at Refineria di Korsou. “People are calling me from all over the world,” he said, citing the U.S., China and countries in the Middle East.
The state-owned refiner has storage capacity of 15 million barrels but its operations have been closed for two and one-half years, as it was leased by the Venezuelan government’s sanctioned oil company. Refineria di Korsou took back control of the operation in January and is now carrying out safety checks and maintenance work. Mr. de Lannoy said the facility won’t be up and running until June.
The storage challenge is a boon to the few players who have invested in storage capacity.

Royal Vopak,

the world’s biggest independent tank storage company, says its facilities are nearly full. The company has seen a substantial increase in requests for space recently, says Chief Executive Eelco Hoekstra.
“The only tanks that we are not renting out are those that are out of service,” he says.
Some storage points aren’t physically full, but are essentially off the market. About 30% to 40% “of storage in the U.S. is empty, but it’s all booked and in the hands of traders and operators,” said Chris Midgley, head of analytics at S&P Global Platts. “We can probably say the same for all storage around the world. There is storage available but not to rent.”
Until the world gets moving again and begins to burn off the excess oil, controlling storage is power—and Saudi Arabia has become king of it. Oil stored inside the country rose by 8 million barrels to 79 million in 2½ weeks before March 26, according to Kayrros, which uses satellite imagery to analyze commodity markets. The Saudis booked remaining capacity in an Egyptian storage facility. Still, demand fell faster than it could lease storage.
The Saudi strategy has been that “ours should be the last tanks that need to be filled—the last tanks standing,” says Platts’s Mr. Midgley. “Everybody wants to be the last.”
Write to Benoit Faucon at benoit.faucon@wsj.com and David Hodari at David.Hodari@dowjones.com
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<ul>
<li>site_name: wsj</li>
<li>host: www.wsj.com</li>
<li>url: <a href=”https://www.wsj.com/articles/storage-crisis-worsens-for-glut-of-crude-caused-by-coronavirus-11587755805″>https://www.wsj.com/articles/storage-crisis-worsens-for-glut-of-crude-caused-by-coronavirus-11587755805</a></li>
<li>captured: 4/24/2020 8:00:04 PM UTC</li>
<li>hash: b2c8e1887b1fcd027018d7a2968b410b</li>
<li>location: middle column, article 12</li>
</ul>



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