Producers and traders can collect Brent in the North Sea by ship and store it at sea, unlike their American counterparts, who must find storage space in Cushing or transfer thousands of barrels more than 500 miles to the coast, Gilks says.
This constraint was largely the cause of Monday’s historic rout.
Typically, North Sea oil would be delivered to Antwerp, Rotterdam or a handful of storage terminals in the UK at locations such as Falmouth and the Port of London.
But as available space on land has filled up across Europe, traders and producers are turning to the seas, sending the rates for tankers that can be used as floating storage skyrocketing.
One of these vessels, the Seaways Rosalyn, sits a few miles off the coast of Suffolk, carrying about 2 million barrels of oil.
Crude awakening
These very large crude containers (VLCCs) like Seaways Rosalyn cost about $250,000 a day – 10 times the rate in February.
For those with deep pockets looking for storage space, there’s good news. There is no shortage of VLCCs running out, says Tor Svelland, chief executive of Svelland Capital, a hedge fund focused on oil markets. “There’s approximately 770 in the world. If you really want and need a VLCC, as long as you pay the market rate you’ll get a ship,” he says.
Ravi Bhatiani, executive director of the Federation of European Tank Storage Associations (FETSA), says capacity is still at a healthy level: “The European tank storage sector is well placed to manage the increased levels of demand in a safe manner, both in the short and longer term.”