Ships, trains, caves: Oil traders chase storage space in world awash with fuel

London/New York

OIL traders are struggling to find enough ships, railcars, caverns and pipelines to store fuel as more conventional storage facilities fill up amid abundant supply and plummeting demand due to the novel coronavirus crisis.

Dozens of oil tanker vessels have been booked in recent days to store at least 30 million barrels of jet fuel, petrol and diesel at sea, acting as floating storage, as on-land tanks are full or already booked, according to traders and shipping data. That adds to about 130 million barrels of crude already in floating storage.

Demand for oil and its products has tumbled as much as 30 per cent with lockdowns around the world - grounding planes and leaving cars parked. But the world remains awash with oil supplies.

Opec, Russia and other major producers have forged a deal to curb production, but it will only reduce supply by about 10 per cent and it does not kick in until May.

It is hard to gauge the world's total oil storage capacity, but signs that the limit is being reached are increasingly obvious. Rising sea storage is one indicator, as it is more expensive than storing onshore and can be technically complex. Oil producers, refiners and traders are also turning to more unusual tactics, such as storing crude and fuel in railcars in north-eastern US or in unused pipelines.

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Europe's north-western refining and storage hub still has space to fill but industry experts say most of the remaining capacity has already been booked. Salt caverns in Sweden and other Scandinavian countries were either full or fully booked.

"We are now working on the most oddball storage locations, really tough locations where there are operational constraints," said Krien van Beek, a broker at ODIN-RVB Tank Storage Solutions in Rotterdam.

The US has some refined products storage space left in the area from the Mid-atlantic to the South-east and along the Gulf Coast, said Ernie Barsamian, CEO of The Tank Tiger, a US terminal storage clearinghouse. But he said more preferable product storage sites, such as deepwater ports in New York Harbor and Houston, which are close to the demand centres, were no longer available. In the US, onshore storage tanks are mostly reserved for local refineries which are using railcars to store crude, as well as petrol and diesel.

And nimble traders are creating new storage options. Tanker vessels carrying at least 1.5 million barrels of diesel have been diverted in recent days from their original European destinations to the New York region to anchor in storage, according to traders and shipping data.

Many refineries are reducing output or, in some cases, shutting down as they no longer have any place to put oil to be processed or the products they make. REUTERS