Global petroleum liquids consumption through 2021 is expected to remain lower than 2019 levels, and crude oil tanker rates are likely to remain low until petroleum demand rises, according to the U.S. Energy Information Administration (EIA). Demand remains uncertain as COVID-19 infection rates rise in several countries.
In March and April, reduced demand for crude oil and petroleum products in response to efforts to mitigate the spread of COVID contributed to a rise in global crude oil inventories. As onshore inventories increased, the surplus oil was stored in tankers, in which storage is usually more expensive than onshore storage.
The decline in global oil demand and the rise in the need for floating storage happened amid high levels of global crude oil production, especially from members of the Organization of the Petroleum Exporting Countries (OPEC), and increased tanker demand, which led tanker rates to increase. Tanker rates have fallen since mid-May because global crude oil production and demand have become more balanced.
Tanker rates from the Arabian Gulf to Japan, one of the key global tanker routes, rose in mid-March and remained high through mid-May. The price in mid-March was the highest since at least 2000, excluding the rise in October 2019 as a result of U.S. sanctions on shipping firm COSCO of China.
A majority of the estimated global inventory increase that happened between March and July can be attributed to the rising volumes of crude oil in floating storage. Global crude oil floating storage rose 236% to 222 million barrels on July 9, from 66 million barrels on March 1, according to ClipperData. The tankers storing the oil were loaded at a crude oil export facility and anchored or adrift for at least seven days in an offshore area where idle ships tend to congregate. The estimates of crude oil in floating storage include oil and petroleum liquids that were set to be shipped to a port or refinery but couldn’t be offloaded because of port congestion.
Crude oil production cuts from OPEC and partner countries (OPEC+) started in May and decreased the demand for crude oil shipping and floating storage. In September, tanker rates on the Arabian Gulf-to-Japan route fell to $5.50 per metric ton, the lowest amount since 2003.