The volume of crude oil held in storage at sea fell to 85 million barrels at the end of June from 93 million in May, the International Energy Agency (IEA) said, and shipping sources said it had become less profitable Crude oil storage hit record highs last year helped by an oil market structure known as contango, where the price of prompt oil trades at a discount to oil for future delivery. This discount has since narrowed. In recent months, Iran has been also storing crude oil on tankers as it has struggled to sell its output.
"The drop in crude was concentrated in the U.S. Gulf, -7.2 million barrels, and N.W. Europe, -3.9 million barrels," the IEA said on Tuesday in its monthly Oil Market Report.
"Reports indicated that several tankers holding Iranian crude were moved or discharged but, according to available tanker data, the levels stored in the Middle East Gulf remained virtually unchanged, at around 50 million barrels at end June."
The agency, which advises 28 industrialised countries, said clean product floating storage fell by 4 million barrels to 30 million barrels due to a draw in oil products held off northwest Europe. But it said a build off West Africa partly cushioned the fall.
Overall floating storage for crude and clean products fell by 12.3 million barrels to stand at 115.1 million barrels by the end of June, the IEA added.
Crude oil held in floating storage had been driven until recently by a trading play which at one point involved well over 100 million barrels of crude floating off the coast of Britain, the United States and elsewhere.
The discount was deep enough throughout last year to allow trading companies to buy crude oil, put it in tankers for several months and sell it for delivery later at a big profit.
The tanker market has also been boosted by Iran holding crude oil on vessels as it has struggled to sell its heavy, sour crude. During summer months the heating fuel market recedes and diminishes demand for this grade of crude.
TANKER MARKET
Apart from Iranian storage, shipping sources said overall crude oil held on tankers had fallen.
"Since the contango has disappeared there is no real reason to store crude oil on tankers," one source said.
Broker ICAP Shipping estimated 6 very large crude carriers (VLCCs) and 1 ultra large crude carrier (ULCC) were storing crude globally by July 9, down from 8 tankers a week earlier. This excluded Iranian storage.
A VLCC can store up to 2 million barrels of oil, while a ULCC can store up to 3 million, meaning 15 million barrels of crude oil were being stored globally at sea.
A second shipping source said separately around 10 VLCCs were still storing crude globally, excluding Iran.
The IEA said while global oil demand was approaching levels last seen in early 2008, the tanker market remained "subdued" due to oversupply.
It said oil demand from India and China and floating storage had both helped support tanker rates above break-even levels.
"Floating storage has remained at exceptionally high levels throughout the past two years, which has tied up tonnage on medium-term charters," it said.
"If storage was to recede to the levels of 2008 it is conceivable that rates would crash, especially on VLCC routes."
"The drop in crude was concentrated in the U.S. Gulf, -7.2 million barrels, and N.W. Europe, -3.9 million barrels," the IEA said on Tuesday in its monthly Oil Market Report.
"Reports indicated that several tankers holding Iranian crude were moved or discharged but, according to available tanker data, the levels stored in the Middle East Gulf remained virtually unchanged, at around 50 million barrels at end June."
The agency, which advises 28 industrialised countries, said clean product floating storage fell by 4 million barrels to 30 million barrels due to a draw in oil products held off northwest Europe. But it said a build off West Africa partly cushioned the fall.
Overall floating storage for crude and clean products fell by 12.3 million barrels to stand at 115.1 million barrels by the end of June, the IEA added.
Crude oil held in floating storage had been driven until recently by a trading play which at one point involved well over 100 million barrels of crude floating off the coast of Britain, the United States and elsewhere.
The discount was deep enough throughout last year to allow trading companies to buy crude oil, put it in tankers for several months and sell it for delivery later at a big profit.
The tanker market has also been boosted by Iran holding crude oil on vessels as it has struggled to sell its heavy, sour crude. During summer months the heating fuel market recedes and diminishes demand for this grade of crude.
TANKER MARKET
Apart from Iranian storage, shipping sources said overall crude oil held on tankers had fallen.
"Since the contango has disappeared there is no real reason to store crude oil on tankers," one source said.
Broker ICAP Shipping estimated 6 very large crude carriers (VLCCs) and 1 ultra large crude carrier (ULCC) were storing crude globally by July 9, down from 8 tankers a week earlier. This excluded Iranian storage.
A VLCC can store up to 2 million barrels of oil, while a ULCC can store up to 3 million, meaning 15 million barrels of crude oil were being stored globally at sea.
A second shipping source said separately around 10 VLCCs were still storing crude globally, excluding Iran.
The IEA said while global oil demand was approaching levels last seen in early 2008, the tanker market remained "subdued" due to oversupply.
It said oil demand from India and China and floating storage had both helped support tanker rates above break-even levels.
"Floating storage has remained at exceptionally high levels throughout the past two years, which has tied up tonnage on medium-term charters," it said.
"If storage was to recede to the levels of 2008 it is conceivable that rates would crash, especially on VLCC routes."