The Global Oil Glut Is So Great, Tankers Take The Long Route Around Africa To Find A Buyer

Tyler Durden's picture

While we have previously observed the massive glut of oil product in the US, which has led to such arcane developments as a "parking lot" of oil tankers outside of Galveston, TX...

 

... or ships loaded to the brim with crude making U-turns in the middle of the Atlantic Ocean, taking advantage of the supercontango while unable to find buyers...

 

... we can now say that things in Europe are just as bad, if not worse. According to the latest "This week in petroleum" blog post by the EIA, European distillate oversupply has results in floating storage and shipping changes, such as tankers taking the long route around Africa (40 days vs 20 days), because they are unable to find a buyer and hoping that demand will spike while ships are at sea. So far demand continues to plunge even as more and more supply comes online.

From the EIA:

Europe, like the U.S. East Coast, is experiencing a relatively warm winter. In addition to the resulting weak winter heating demand, high refinery runs in Europe and increased imports have kept distillate inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far above normal. Higher inventories have pushed distillate futures prices in the ARA into a steep contango (meaning prices for delivery dates further in the future are higher than for near-month delivery). As a result, inventories are being held in floating storage and imported cargos are being diverted to longer voyages.

Increased European refinery runs [have] contributing to high distillate inventories in the ARA region. As demand for gasoline in the United States and in West Africa increased last summer and fall, higher gasoline crack spreads led to increased European refinery runs. The increased refinery runs yielded distillate, along with the more profitable gasoline.

At the same time, new and traditional sources of distillate have expanded capacity to supply ultra-low sulfur distillate (ULSD) to Europe. In Russia, which is a longtime supplier of distillate to Europe, refineries have been upgraded to produce lower-sulfur distillate fuels that are widely used in Western Europe, and have increased exports to Europe. Elsewhere, several new refineries, including those in Saudi Arabia and India, which are geared toward maximizing ULSD output, have come online in the past few years, further adding to the supply of distillate.

These factors — reduced heating demand, increased European refining runs, and increased imports — have pushed independently held distillate inventory levels in the ARA to more than 26 million barrels in recent months, more than 7 million barrels higher than the five-year average (Figure 2).

The ARA is the delivery point for the Intercontinental Exchange (ICE) gasoil (distillate) futures contract. Consistently high distillate inventories in the ARA have pushed prices lower and ICE gasoil futures into a steep contango. The futures spread between the prompt month ICE gasoil contract and the contract for 12 months forward was $8.90 per barrel contango in January (Figure 3).

Trade press reports indicate that a lack of storage space and a large contango have pushed distillate supplies into floating storage and encouraged import cargoes to take longer shipping routes. When contango in the futures contracts become sufficiently large, market participants can lock in a profit by purchasing distillate supplies on the spot market, chartering a vessel, and selling a longer-dated futures contract.  

Trade press report that several vessels in European waters, such as off the coast of Gibraltar in southern Spain and outside of the ARA ports, have been booked specifically for distillate floating storage.

Another tactic employed by market participants is to have inbound cargoes take longer voyages, which allows more time to find a buyer, or onshore storage space, and also provides a return from the higher priced later delivery date.

According to the trade press, many cargoes from the Middle East and India have diverted around the Cape of Agulhas, at the southernmost point of Africa, on their way to Europe rather than passing through the Suez Canal in Egypt. The longer trip takes 30-40 days instead of the 15-20 day journey through the Suez Canal (Figure 4).

h/t @GreekFire23

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LetThemEatRand's picture

Is that a shipping chart, or is the blue circle the US government's current projection of "what's mine next."

I filled up my Jeep tonight for $25, which used to take $60.  And this is supposed to be a bad thing?  What really cracks me up is the idea that oil prices are based on supply and demand.

TeamDepends's picture

Brother, can you spare a refinery?

LetThemEatRand's picture

I have it on good authority it is all about drilling, baby, drilling.

Keyser's picture

I'll gladly pay you Tuesday for a tanker of crude today!!!

 

Minions's picture

Will the check be in the mail? Hahahahaha!

Rubicon's picture

That map was drawn by a yank.

LetThemEatRand's picture

If by "pivot" you mean "conquer."

Moonflower's picture

China and Russian high tech weapons makes Africa rather pivotable.
Oh, the Chinese are already there, building roads, dams and schools etc. no military bases insight.
How refreshing.
The Eagle is dead!

Benjamin123's picture

Schools. If theres something foreigners need to invest in Africa, is in schools.

BullyBearish's picture

If we could only run our cars off of straight crude...

fxrxexexdxoxmx's picture

Except those savings at the pump are now used to pa for Obama Care. Thank you Barrack Hussein Obama, AKA, Barry Soeteo, AKA the biological son of Frank Marshall Davis.

logicalman's picture

You know the world's financial and political systems are fucked when.........

arbwhore's picture

A whole 2 1/2 weeks of consumption in storage. "Glut" indeed.

Dark Daze's picture

Uh, not really. There is a half billion in storage in the US, plus another half billion in the strategic petroleum reserve. So considering that the US has to import 7 million barrels a day, even when there is no economic activity, that amounts to a 145 day supply, assuming no rationing. It does however, assume a major world war.

sun tzu's picture

A 145 day supply assuming every well in the world stops pumping

Rehab Willie's picture

I see cargo ships going bone dry consuming their load while doing donuts in the Atlantic.

JackT's picture

The lack of demand is incredible and scary

Kefeer's picture

Not as much about demand as it is supply.

City_Of_Champyinz's picture

Nobody is making anything out of oil, and nobody is shipping shit anywhere no matter what it is made out of.

Seek_Truth's picture

"Nobody is making anything out of oil, and nobody is shipping shit anywhere no matter what it is made out of."

Disagree.

I just made a delicious olive oil bread dip

And manure is still shipped, and used as fertilizer everywhere.

StackShinyStuff's picture

I find your lack of demand disturbing

Government needs you to pay taxes's picture

Dont worry, they're running their printing presses @ 110% capacity! 

Kefeer's picture

Perhaps it is a little safer than going through the Suez Canal and/or they are using the route because it is easier to pump and dump and get away with it.  The ocean can hold a lot of oil reserves.

 

It would make more sense to just let it sit at a port than to drive around waiting for the buyers call; total crap.  They are dumping it.

Dark Daze's picture

The western half of the Med is full of American warship and the eastern half is full of Russian warships. Probably no more room.

Deep_Out-of-the-Money's picture

It costs money to use the Suez. When there is only a small contango, high fuel costs and high freight rates it makes sense to pay up and save the 20 days. In the current climate, it is probably cheaper all-in to sail around the cape. I wouldn't read too much into this besides it being a commercial decision to save transport costs.

JAFAH's picture

It costs US dollars to use the Suez.

__Usury__'s picture

Not that I really care, but how well does the dollar function with low oil prices???

we are about to find out..........

 

 

http://www.theguardian.com/business/2003/feb/16/iraq.theeuro

 

Dark Daze's picture

You know, I look at this stuff and see these oil magnates desperately trying to maintain their supply chains, because if they fail, well, it will be revolution in 3 months and then there are the central bankers and all the rest who collectively don't have fucking clue and I ask myself, are they on crack? Probably.

The solutions are glaringly simple. If you want more inflation, raise wages and restore the economy. If you want the oil market to recover, just nuke SA. You would instantly restore not only the oil markets but the banks as well, and at the same time rid the world of the most festering, decrepit, rotting piece of flesh on the body of mankind.

 

pitz's picture

Maybe hoping they'll be pirated by the Somalis or something, so they can collect insurance money?

Yen Cross's picture

  I thought the term, " around the horn" was about baseball?

fishwharf's picture

I thought "around the horn" had something to do with sex.

Bagbalm's picture

What are the canal fees compared to burning more fuel at these low prices?

 

Moonflower's picture

Spot on!
What happened to the Horn of Africa or Cape of Good Hope?

JohninMK's picture

It got 'Africanised'.

Probably a significant word in Zulu or something.

Lumberjack's picture

 

edit: Pitz beat me to it.

news printer's picture
Saudi Arabia gets another S&P credit rating chop as oil collapse drags on

The downgrade of Saudi Arabia by two levels was “the most eye-catching” even if it was not a surprise, according Jason Tuvey, Middle East economist at Capital Economics in London. Central bank reserves declined $115 billion in 2015 to $608 billion and the budget deficit stood at about 15 per cent of economic output last year.

http://www.thenational.ae/business/economy/saudi-arabia-gets-another-sp-credit-rating-chop-as-oil-collapse-drags-on

In Letter to King Salman, Council of Saudi Chambers Chairman Al-Zamil Urges Payments to Construction Firms

Some construction firms have seen scheduled payments from the government delayed by over six months, according to the letter obtained by Reuters. “If the delay in payments continues, these companies will be at risk of default, or go completely out of business.”

 

The finance ministry has cut advance payments to firms doing state construction work from 20% to 5%, the government has awarded fewer contracts, and its payments to companies for work already done have slowed, industry executives tell Reuters.  “Partly because of the payment delays, some firms have delayed paying their staff or laid off thousands of workers, and several have begun talks to reschedule debts. Jabal Omar Development said last month it was in talks with creditors after failing to make a 650-million Saudi riyal first repayment on a 3-billion Saudi riyal government loan,” Reuters reports.

http://sustg.com/in-letter-to-king-salman-council-of-saudi-chambers-head-al-zamil-urges-payments-to-construction-firms/

 

Saudi Arabia cancels $4bn aid package for Lebanon’s security forces

“The suspension came as a result of Lebanon’s positions, which are not in harmony with the brotherly ties linking the two countries,” said an unnamed official quoted by Saudi Arabia’s state-run Saudi Press Agency.

http://www.thenational.ae/world/middle-east/saudi-arabia-cancels-4bn-aid-package-for-lebanons-security-forces

Saudi groundwater “will run out in 13 years”

 

Saudi Arabia’s groundwater will run out in the next 13 years, according to a water expert at King Faisal University, reported the Saudi Gazette.

A faculty member at the university, Mohammed Al-Ghamdi, made the announcement following an issued report by the World Bank on global natural water scarcity.

http://www.arabianbusiness.com/saudi-groundwater-will-run-out-in-13-years--621171.html

No monies, no water; solution going to war; total devastation anyway.

sun tzu's picture

They could sell their $700B SWF portfolio

fattail's picture

That is the best piece of news I have read in weeks.  Gives me hope knowing the rotting, decrepit, piece of humanity will soon reap a portion of the misery their death cult has sown over the last 1400 years..

Muse minus Time's picture

Looks like the Chinese have a selling opportunity of those ghost cities!

Raden's picture

One wonders why tankers that cost fuel and wages each day at sea would voluntarilly chose to double those costs per load via going the long way round. this argument just doesn't stack up it's like going the very very long way to the petrol station in the hope fuel prices will go down in transit the additional costs don't make it worth while.... something else is going on here.

some possible other reasons ?

1) Pirates 

2) Suez Charges 

3) Risk of things boiling over in Syria with Turkeyand S.A. going  toe to toe with Russia and Iran in the near future

4)All of the above...

beaglebog's picture

 

 

 

Tankers have always gone round Africa.  I was making that journey 40 years ago.

 

You can't pass but a small ship through Suez.

Raden's picture

soo.... Business as usual then 

beaglebog's picture

 

 

 

In some respects, yes.

 

Fill a big boat with oil, then plod around Africa to Europe, at 6 knots, burning 100 tons of bunkers, each day.

 

It was not uncommon to lie at anchor for weeks ... sometimes several months ... waiting for the prices to become favourable.

Raden's picture

Yeah I have made a number of trips sailing up the east coast of Australia, I once counted over 60 bulk coal carriers anchored off Newcastle waiting to be loaded it wasn't uncommon for them to be there months waiting. 

This was in the middle of the boom aswell, i'd hate to see them lined up there now.

It will be interesting to see what happens when all the land storage is full and the ships are all full what they are they going to do with the oil then ...dump it , pump it back underground, we could even see negative prices.

 

fiboman's picture

Energy Sector Equities (XLE): A buying opportunity

http://goldenopportunitytrading.blogspot.co.uk/

JimmyRainbow's picture

elsewhere on the net i have read that prices for oil agreed upon month before delivery (lufthansa for example tells that story to explain why tickets still cost the same). additionally there are futures and all that derivative stuff, assurance for price levels.

makes me wonder that the oil seems to be paid cash in the harbour.

all these narratives are torn apart every day a little bit.

Muse minus Time's picture

Free oil for India, UAE offers deal based on new India storage facility

http://www.arabianoilandgas.com/article-15271-uae-to-store-oil-in-india-...