Oil Tankers Back Up As Onshore Storage Fills

As land storage sites worldwide reach the brimming point due to a supply glut, tens of millions of barrels of oil are sitting on tankers looking for homes - threatening logistical paralysis.

The International Energy Agency on Friday said stored oil has hit 3 billion barrels. Traders say the excess of crude is leaving tankers queuing at major ports worldwide, lengthening waiting times to days, weeks and even months.

The lack of space to unload oil is tying up the tankers needed to keep oil moving and wells running. The bottlenecks could force oil suppliers into quick, cut-priced sales just to free space, adding more pressure to oil prices already close to six-year lows.

The cost to hire a supertanker - each capable of carrying 2 million barrels of oil - recently hit its highest level since 2008 at over $100,000 a day last month and currently remains at over $70,000 a day.

"We're alarmed," said Eugene Lindell, senior crude market analyst with JBC Energy. "There are growing indicators that it's getting harder to digest this crude."

Trade sources said there were seven Aframax tankers - each capable of carrying up to 700,000 barrels of oil - sitting outside Rotterdam waiting to unload. There was also nearly 15 million barrels of unsold West African crude oil either loaded on tankers or waiting to be loaded in the next two weeks.

Shipping and port sources, pointing to full onshore storage, said up to 20 supertankers were held up in Iraq's Basrah terminal, with vessels experiencing loading delays of up to 12 days.

One port source said at China's Qingdao port, one supertanker was stuck at anchorage since August and another since last month.

"There are delays across the board as a lot of cargo is being put through the system. Port delays in Basrah and China in particular but also in many other areas. This is tying up capacity," said one tanker source.

Shipping consultants MSI said the near-term outlook for crude tankers was positive.

"Storage space in China and Europe is dwindling, leading to extended discharge times. Couple this with ongoing high load waiting times in Iraq and Turkish Straits delays and (tanker) availability is tight," MSI said.

A problem for oil players is that tankers have not been booked on long-term charters. Sources said the current build up was parked on vessels hired for shorter journeys, meaning oil suppliers will have to unload soon or face more freight expenses.

"Those holding stocks will either have to dump their cargoes at cheaper prices or pay those higher freight costs," a trade source said.

Another added: "Each minute the clock is ticking, they're losing money."

On Friday, the premium for storing U.S. crude oil for one year over crude for immediate delivery has grown to its widest since mid-August.

The December 2016 contract for the U.S. West Texas Intermediate (WTI) was trading at nearly $7.50 a barrel above December 2015, the widest premium since Aug. 18.

Traders attributed the spike to a rush to store oil as U.S. crude's fundamentals in the near-term worsen from rising inventories.

(Additional reporting by Barani Krishnan, Amanda Cooper, editing by William Hardy)