Brittney Mills, Analyst, Oil Storage & Bridget Hunsucker, Publications Director, Genscape
Though price incentives to store oil have declined, total crude inventories in ARA reached a record-high of 60.62 million bbls on 19 June 2015, according to Genscape, which began monitoring the north European hub in July 2013. Total ARA crude inventories increased seven times in the past 11 weeks, rising by 10.06 million bbls since 3 April 2015.
Meanwhile, the ICE Brent long-term 12-month spread collapsed US$2.80/bbl over the last three months, meaning that storage inventories increased while the price contango flattened.
ARA Crude Storage (Mbbls) from May 2014 - June 2015.
Many of the barrels in storage now may have been committed during the steeper parts of the contango price curve. Brent has rebounded about US$15/bbl since January 2015, and these stored barrels could be released into the market again soon, adding to the glut of barrels in the Atlantic basin.
It’s also possible that stocks are continuing to build in response to the six month futures spread, which, at over US$0.50/bbl per month, could still cover the cost of storage, depending on the specific economics in each case.
Analysis of ARA crude tank utilisation shows that of the 202 tanks monitored, only 12 of the 176 operational tanks are utilising less than 15 percent of the tank’s capacity, and only five are using less than 10 percent of capacity. This compares to 18 of the 171 operational tanks at 15 percent or less a year ago. At the other end of the spectrum, 77 active tanks are utilising 85 percent or greater, compared to 50 operational tanks at that level a year ago.
March 2015 vs. June 2015 Forward Curve.
The analysis supports recent comments from market participants that storage available for hire is scarce in the ARA region. In addition, various storage facilities around the world are almost full, including in Rotterdam, Platts said on 23 June 2015.
But, storage builds could reverse in the near future if the flattening of the ICE Brent forward curve continues. Beginning in January 2016, the ICE Brent forward curve spread drops to below US$0.50/bbl per month with the spread falling farther to around US$0.3/bbls in March 2016.
Further details on the impacts of the record-high ARA crude stocks are detailed in 29 June 2015’s Wall Street Journal article, “Oil Stocks Hit Two-Year High in European Hub.”
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