Adrift oil tanker's 2 million barrels illustrate oil glut
If a single ship can capture the current state of the global oil, it's the supertanker Saiq, floating idly about 528 miles south of the Canary Islands.
Until a few days ago, the 1,082-foot ship, chartered by Royal Dutch Shell, was steaming at 13 knots toward the Chinese port of Tianjin after loading a 2 million-barrel cargo of North Sea oil at the Hound Point terminal near Edinburgh. Then, it suddenly stopped in the middle of the Atlantic Ocean, according to ship-tracking data compiled by Bloomberg.
Its problem: China isn't buying much crude right now, leaving the tanker searching for a customer. While the vessel was floating near Africa last week, Shell offered to sell the cargo in a ship-to-ship transfer all the way back in Scotland. There weren't any takers.
Across the world, the plight of the Saiq, now idling off the coast of Mauritania, reflects a broader trend in the physical oil market. After six months of oil-production cuts from the Organization of Petroleum Exporting Countries and 11 non-OPEC nations led by Russia, crude supply is, surprisingly, still plentiful, according to traders.
"It's a buyer's market," said Olivier Jakob, managing director of Swiss-based consultant Petromatrix GmbH, echoing a widely held view in the physical market.
On paper, global supply and demand balances from the likes of the International Energy Agency say the market should be reducing stockpiles. Oil prices, however, suggest that any inventory reduction remains minimal. The headline price for Brent crude, the global benchmark, is below $50 a barrel, indicating buyers are on the sidelines.
Time-spreads, the price difference between contracts for different months, have widened considerably in June, with key yardsticks at levels last seen in November, when OPEC announced its output cuts. Signs have emerged that traders are resorting to turning tankers into floating storage in response to a lack of buyers.
The oversupply is particularly acute in the so-called Atlantic basin, where high quality light, sweet crude is abundant thanks to the return of some Nigerian production after a disruption of more than a year, stronger output from Libya, robust North Sea supplies and record-high U.S. oil exports.
"Recovering output from Nigeria and Libya -- which has unexpectedly sustained so far -- is worsening the imbalance of light crudes in the market and effectively halving the OPEC cuts," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. "If OPEC does nothing to compensate for their recovery, light crude prices will remain low," she added.
The supertanker Saiq is now signaling a Chinese port as its destination, though it still appears to be drifting off the African coast. A Shell spokesman declined to comment.