Last Friday, a total of eight supertankers - very large crude carriers (VLCC) – had anchored off the Dutch coast, half of them fully loaded. Each of them can carry up to 2 million barrels of crude oil, enough to fill up 6 million small cars.
These supertankers could reach the port of Rotterdam, Europe's biggest oil refining and trade centre, in less than an hour. But they don't. There just isn't enough room, says Jeroen Kortsmit, commercial manager at Royal Dirkzwager, a maritime advisory company. "The port of Rotterdam is filled to capacity."
Rotterdam is being flooded with crude oil, which has become superfluous because of the economic slowdown. The port can normally hold up to 12.8 million cubic metres of crude oil. That's 80 million barrels, or enough to supply all 27 member states of the European Union for five days. Now the Rotterdam port is full and companies active in oil storage, like Vopak, Oiltanking and Eurotank, are doing good business these days.
It is the same in other world ports. The global on-shore supply of crude oil reached 2.75 billion barrels in the first quarter of 2009, 180 million barrels more than a year earlier, according to the International Energy Agency (IEA) in Paris. That's only half a million barrels shy of the 1998 record at the time of the Asian crisis.
The IEA says an additional 100 to 115 million barrels were stored at sea at the end of April. "We counted 28 tankers off the Dutch coast last Friday," says Kortsmit, "and only a quarter of them were empty." Floating oil storage is now back at the March level of 85 million barrels, but that's still the total global oil production for one day.
Capacity problems at the ports are not the only reason why so many oil tankers are bobbing aimlessly off the coasts. A number of them have thrown anchor there deliberately. Their cargo belongs to traders who have bought surplus oil at low prices, and are waiting for the right time to bring it on the market.
Contango
There has always been a certain amount of floating oil storage, but never in such quantities. The reason is that for a number of months oil has been cheaper on the spot market than on the futures market.
"It is what we call a contango," says Pieter Kulsen, who has been working in the oil trade for thirty years.
Traders buy cheap oil on the spot market and later sell it for much more on the futures market. The price difference is more than enough to pay for the cost of floating storage, especially since the tariffs on land are higher because of the capacity problems. Lots of people are taking advantage of this situation. "It's no use naming names," says Kulsen, "it is a widespread phenomenon in the oil business."
Meanwhile, oil prices are on the rise again. When the "contango" becomes smaller - because the spot price rises faster than the futures price - the profits will gradually decrease until there is nothing more to be gained. "At that point huge quantities of oil will become available on the market, which in turn will affect the price of oil," says Kulsen.
It could take up to six months until the floating storage has trickled back into the market. Once the economy picks up again, sailing - instead of speculating - will once again become the main activity for oil tankers. Gradually, the idle oil tankers in the North Sea should disappear as well.
