Regions

Oil supply glut creating traffic jams at sea

November 25
7:52 PM 2015

The skyrocketing oil inventories are paving the way for more traffic jams on the seashores as oil tankers are queuing up along the US Gulf Coast.

The uncompromised Opec's decision to continue its production level coupled with shale production in the US is adding to huge volumes of inventories. The piling up of oil tankers is increasing as there's nowhere to offload oil. 

According to ClipperData, which tracks shipments of crude globally, the floating storage of crude oil rose three times. The oversupply problem has resulted in longer waiting for oil tankers for offloading. The oil tankers were queuing up along the US Gulf Coast as there's a shortage of storage. 

Matt Smith, Director for commodity research at ClipperData described the situation as "a super tanker traffic jam."

Smith, who first noticed the traffic jams caused by oil tankers, forecasts the building up maritime congestion almost one month ago off the coast of Singapore. The current situation is ringing alarm bells as Asia consumes one-third oil production. 

The supply glut pushed oil prices below $40 a barrel. According to the US Energy Information Administration (EIA), the crude oil supplies rose by 252,000 barrels last week.

The market players were disappointed by the rise in oil production and supplies as it was against their expectations. The oil supplies at Cushing, Oklahoma, rose by 1.5 million barrels. Cushing is an important delivery point for Nymex crude. 

The total US crude oil inventories were at 487.3 million barrels this level was not seen during the last 80 years, observe energy analysts, says Investing.com.

The global oil production is surpassing the demand in the wake of booming shale oil production in the US. Adding to this, the Organization of Petroleum Exporting Countries (OPEC) is not going back to production level.

Opec is against the proposal of reduction in the production. The next meeting of Opec is scheduled on 4 December to take a decision on whether to continue the existing strategy to keep its market share by continuing higher level production.

The glut in oil production has led to a steep drop in prices of oil and gasoline during the past 18 months. This forced many US companies to slash down the drilling and production activity.

On the other hand, the lower oil price is pushing up demand growth. If supply levels ease over a period of time, then it'll push prices up. But, the question is when'll it happen? 

The US EIA forecasts that the present oversupply situation may not last long. Considering the current levels of production, supply and demand, the US EIA predicts that oil prices may rise by the end of 2016.

The fall in US oil production and rise in global demand are expected to create an environment, in which oil price is set to gain momentum.

Terming it as a strange situation, Smith said that there were no buyers for oil being carried out by these lined up ships. ClipperData also noticed that similar situation is arising even in China and Arabian Gulf.

"There just appears to be more oil than can be dealt with. They haven't got anywhere to put it," said Smith.

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