Non-Iranian floating storage down to an estimated 10 MMBO

Backwardation in the physical oil market is helping to draw down the number of barrels waiting in floating storage, according to a report from CNBC. An estimated 75-80 MMBO of oils was being stored in floating storage as future prices on oil remained higher than the current price (a contango market), encouraging traders to buy crude and hold on to it for a later date.

As oil prices remain around $50 per barrel, however, traders are beginning to sell their crude from floating storage, drawing down the number of barrels offshore to roughly 10 MMBO.

Floating storage is just one small piece of the global oil puzzle, but the shrinking number of barrels being stored offshore is a good sign that markets are beginning to balance, said Energy Aspects Chief Oil Analyst Amrita Sen.

Floating oil storage – defined as a full tanker docked for at least a week – “is a broad indicator to the extent there is a rebalancing and the crude overhang is being run down slowly,” said Sen, who added: “by no means is the crude overhang gone.”

Iran an unknown

These numbers do not include floating storage in Iran, however, which complicates the estimate. Analyst estimation on how much oil Iran is holding in floating storage vary widely from 30 MMBO to 47 MMBO, with the difference giving very different signals about how much oil Iran is capable of producing.

“If Iran actually has had more oil in offshore storage than [some analysts] report, it could mean that Iran’s production levels are less than otherwise believed and that its exports over the last few months have come from stored oil,” said Ellen Wald, an independent energy and geopolitics analyst.

Oil prices close higher even as analyst expect an inventory build in the U.S.

Both the international and U.S. crude oil benchmarks closed higher today with Brent at $52.00 per barrel and WTI at $50.70. Improved crude oil prices came in spite of expectations that the Energy Information Administration is expected to report crude oil inventory builds for the second straight week on Wednesday.

U.S. crude inventories likely rose by 2.4 MMBO in the week of October 14, according to a Reuters poll.

Expectations that OPEC will reach a production deal at its next meeting in December are supporting prices, but analysts disagree on whether or not the group will finalize an agreement.

“Expectations are that we will get something” at the Nov. 30 meeting, Ian Taylor, chief executive at Vitol, the world’s top oil trader, told an industry conference in London. “Whether it is quite good enough to get a substantial rebalancing in the short term, I am not sure.”

Phil Davis, a trader at PSW Investments was more pessimistic, saying: “We shorted WTI this morning at $51. We think ultimately that over the course of the next 30 days or so, it will drop down to $37.50 or possibly lower.”

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