Early last month, we noted that something very strange was happening off the coast of Galveston, Texas.
As FT reported, "the amount of oil [now] at sea is at least double the levels of earlier this year and is equivalent to more than a day of global oil supply.” In short: the global deflationary crude supply glut is beginning to manifest itself in a flotilla of stationary supertankers, as millions of barrels of oil are simply stuck in the ocean as VLCCs wait to unload.
Ultimately, this led to nearly 40 crude tankers with a combined cargo capacity of 28.4 million barrels waiting to anchor near Galveston. Here’s what the logjam looked like:
In the latest sign that the world is simply running out of capacity when it comes to coping with an inexorable supply of commodities, three diesel tankers en route from the Gulf to Europe did something rather odd on Wednesday: they stopped, turned around in the middle of the ocean, and headed back the way they came!
"At least three 37,000 tonne tankers - Vendome Street, Atlantic Star and Atlantic Titan - have made U-turns in the Atlantic ocean in recent days and are now heading back west," Reuters reported, citing its own tracking data.
The Vendome Street actually made it to within 800 miles of Portgual (so around 75% of the way there) before abruptly turning around. "Ship brokers said a turnaround so late in the journey would come at a cost to the charterer," Reuters notes.
The problem: low prices, no storage capacity, and soft demand.
Here's Reuters again:
"European diesel prices and refining margins have collapsed in recent days to six-year lows as the market has been overwhelmed by imports from huge refineries in the United States, Russia, Asia and the Middle East. At the same time, unusually mild temperatures in Europe and North America further limited demand for diesel and heating oil, ptting even more pressure on the market.
Gasoil stocks, which include diesel and heating oil, in the Amsterdam-Rotterdam-Antwerp storage hub climbed to a fresh record high last week.
And here are the stunning visuals via MarineTraffic.
As of now, it's "unclear if the tankers will discharge their diesel cargoes in the Gulf Coast or await new orders," but what you're seeing is a supply glut so acute that tankers are literally just sailing around with nowhere to go as there are reportedly some 250,000 tonnes of diesel anchored off Europe and the Mediterranean looking for a home. On that note, we'll close with the following quote from a trader who spoke to Reuters:
"The idea is to keep tankers on the water as long as you can and try to find a stronger market."