As we all know, the current drop in oil prices has caused quite a bit of turmoil in the industry. What was once in excess of $100/BBL has crashed significantly with WTI’s price hovering around $40/BBL and Brent Crude a few dollars higher at $43/BBL. This is mainly associated with the United State’s renewed energy revolution of drilling and production capabilities that helped contribute to thousands of new jobs in the on-shore and off-shore oil industry. Although this flurry as also amounted to a massive glut of supply which over the last year has begun to take a toll on the leading nations behind its production. As OPEC, with Saudi Arabia being the most vocal, has stated several times they are unwilling to scale back and cut their production. This is mainly because their economy will not be as affected due to the drop in price because they can rely on massive reserves to wait out the storm. Unfortunately, this is not the case for other energy exporting nations such as Russia, the United States, and Venezuela who have seen massive lay-offs and declines in rig counts. On top of this, the Venezuelan Bolivar has seen a drop to almost half of its value in 2013 while the Russian Ruble has seen similar devaluation since 2014.
As the prices have become so low, many of the storage facilities located within these countries have become filled to maximum capacity levels, causing a need for Oil Tankers to act as floating storage facilities until on-shore facilities offload. In addition to this, waves of speculators have begun using tactics such as Contango Storage Arbitrage. This is when investors believe that it is better for them to turn a profit by having Tankers filled and sit off-shore until there is a rebound in pricing, at which time they will sell for a greater profit that in the previous weeks or months.
In a story posted to gCaptain recently, they refer to the fact that oil tanker rates have jumped to a 7 Year High because “ships are being delayed when unloading due to a lack of space in on-land storage tanks”.