Faced with an ever-growing oil supply, the world’s largest oil companies are asking tanker operators to slow down their deliveries of crude oil. The largest tankers, which haul 2 million barrel cargoes, are moving at 13 knots, rather than the maximum 15 knots. With slower speeds, the voyage takes 48 days instead of 40. Land supplies are growing so big, storage at sea is becoming a very real possibility.
The oil market is dealing with a serious supply glut that shows no sign of slowing in the near future, as OPEC insists that it did not create the excess supply and will not tackle the problem alone. Currently, OPEC countries have nearly 3 billion barrels of oil and stockpiles, according to the international energy agency.
Shares for Euronav NV (EURN), the largest oil tanker company in the world, sank 8.9% to just €11.30. In 2016, company shares have dropped 11%, giving Euronav market capitalization of €1.78 billion.
Slower speeds would help contend with a strain on logistics. With oil supplies growing so rapidly, sites where the cargoes are delivered are struggling to keep up. Over in China, wait times are nearly a week. Typically, there are no delays. Many vessels have to wait in the Middle East as well, which is abnormal.
The call for slower speeds is the opposite of what would occur if rates were low and fuel costs were high. In this case the shipping company would be the one calling for slower speeds whenever their vessels reach the loading ports to load up the cargo.
Although demand is expected to grow faster than originally forecasted in 2016, due to low oil prices, it may not be enough to avoid having oil stored at sea. In such a case, Euronav would charge 75 cents a barrel for each month of storage at sea, according to the company’s CEO.
Brent crude for delivery in April is roughly 80 cents higher than for March, and West Texas Intermediate has increased on a relative basis, which provides more incentive to purchase from producers in the Persian Gulf. Shipments from the Middle East to the U.S. have increased since the lifting of a ban on exports this year.