Around 200 million barrels of crude sits in tankers offshore waiting to be delivered
“If you’ve bought 100,000 barrels of crude at $40 (per barrel) that’ll cost you $4 million,” said one oil trader. “And if you’ve calculated another 1.5 million bucks for a month’s worth of shipping, but you end up paying double that because your ship is stuck in port congestion, then that can seriously mess up everything from your schedule to your arbitrage profitability.”
The global glut of oil that has persisted since November of 2014 has caused a number of problems that rippled outside of the E&P sector. The tremendous amount of production that kept up following the crash in prices continues to fill storage in the U.S. and abroad, and now oil is overwhelming port facilities and creating a crude oil tanker traffic jam at sea.
Some 200 million barrels of oil sits on crude oil tankers waiting to be unloaded, according to reports from Reuters. The ships, which would stretch almost 25 miles if placed end-to-end, are filled with about $7.5 billion of oil at current prices.
The jam goes both ways, too. Ports in China are congested with tankers looking to unload, but the worst congestion is in the Middle East where tankers are delayed as they look to load crude cargoes destined for other parts of the world.
The cause is “a perfect storm of red-hot demand from new entrant refineries in China and port infrastructure in the Middle East and Latin America that is unable to cope,” said Ralph Leszczynski, head of research at shipbroker Banchero Costa. Lezczynski said it was “one of the worst tanker traffic jams in recent years.”
Overloaded infrastructure weakening arbitrage
Ship tracking data shows 125 supertankers, with the capacity to carry enough oil to supply China for three weeks, waiting in line at ports. The combined daily cost of the idled ships is $6.25 million, based on current ship hire rates of around $50,000 per day.
The day-rates on most ships are borne by fuel buyers, but increased wait-times are affecting the economics of crude oil trade in other ways as well.
“It messes up port schedules, catering schedules, crew schedules and the schedules of delivering the transported goods,” said one shipping logistics manager in Singapore. “It also raises the cost for pretty much everyone involved.”
According to Marinelink.com some 50 supertankers are at anchor in or near waters around Singapore for refueling, maintenance or waiting to deliver crude to refineries or be used as floating storage.
Many of the ships are not crew comfort-friendly, a Filipino sailor who left a very large crude carrier (VLCC) in March after a voyage to China, told MarineLink.
“‘On my last one, we had no regular Internet … only an old TV with a couple of old DVD movies. The food is terrible and while waiting to offload we did pretty hard maintenance work. The sort of stuff you can’t do when the engine is running’.”
