Total oil floating storage grew an estimated 220 million barrels per day (b/d) since mid-March, a report said, noting that Covid-19 has created a historic imbalance in the global oil market, forcing crude stocks to grow at a dizzying pace.

Total oil (crude and product) floating storage grew an estimated 220 million barrels per day (b/d) since mid-March, added the latest BofA Research report, highlighting that growing volumes of crude on the water explains the surge in crude tanker rates.

Refiners and traders also struggled to sell refined products and opted for floating product storage, which caused clean tanker rates to spike. As refined product inventories continue to mount, steeper contangos for certain products may be needed in order to facilitate additional floating storage, said the Commodity Update from Bank of America (BofA).

Builds to slow from here, but spreads still at risk

Global petroleum stock builds likely peaked in April as oil demand contracted by nearly 25 million b/d year-on-year (YoY). Now, countries are emerging from lockdown, boosting demand just when OPEC+ cuts are kicking in and producers elsewhere are cutting output.

Even so, the market should remain in surplus for the remainder of 2Q20, resulting in continued, albeit slower crude oil and product inventory builds. The oil market is forward looking and market balances look much better in the second half of 220 (2H20) which should lend support to prices.

That said, with so much product moving into floating storage, we see risk of additional pressure on refining margins, which could ultimately result in renewed weakness for crude oil prices and would likely warrant steeper contango. Tanker rates may ultimately play a critical role in accelerating the oil market rebalancing, becoming prohibitively expensive, driving down spot oil prices, and forcing producers to leave oil in the ground.

Since mid-March, global land based crude oil inventories climbed roughly 4.3 million b/d or 180 million bbl, with roughly 75 million bbl of builds occurring in the US, the report said.

Here, Cushing filled at a record pace of 20 million barrels in four weeks, contributing to temporary, negative oil prices in North America. The remaining builds were concentrated primarily in APAC (ex-China), the Middle East, and Europe, while China's inventory growth slowed as lockdowns were eased.

“We estimate available onshore crude oil storage at just 730 million barrels now, concentrated in China, other APAC, and the US. Land based refined product stocks, which are less well tracked, also climbed counter-seasonally in the US, ARA, and Singapore. In the US, product stocks rose 45 million barrels (1 million b/d) since mid-March,” the BofA Research report said. – TradeArabia News Service