With big outages in oil supply, buyers tap plentiful storage

Islamic StateTotal U.S. crude inventories near peak, up 61 million barrels from year ago

By Libby George and Catherine Ngai

NEW YORK, May 19 (Reuters) – Oil traders from Houston to the North Sea are tapping into plentiful storage onshore and offshore, evincing little sign of concern yet about mammoth supply losses from Canada to Nigeria that has knocked out about 2 million barrels a day of output.

Ample oil inventories near record highs on ships and land have left buyers in no hurry to lock down new crude supply. Many have even shunned offers of fresh cargo. Traders said there was an overhang of physical oil in Nigeria, with more than 20 June loading cargoes available. In Angola, there were nearly 10 June-loading cargoes.

“There is simply so much crude on the market,” said Eugene Lindell, oil analyst with JBC Energy, adding that buyers “are quite wary simply because there is so much stock available.”

Analysts had expected that by now, the Canadian wildfire shutting some 1 million bpd in capacity would dent supply. But stocks at the Cushing, Oklahoma, hub still hit a record this week, even though U.S. Midwest oil stocks drew for two weeks running as refiners tapped into storage.

Total U.S. crude inventories are near their peak, up 61 million barrels from a year ago, according to the U.S. Energy Information Administration. Crude stocks in Europe have tested capacity, and there are some 44 million barrels of oil floating off Singapore.

The overhang stems from two years of production that exceeded demand to the tune of more than 1.5 million bpd. All that extra oil flowed into tanks worldwide, and even onto ships offshore.

“There are huge extra exports from Iran and absolutely unprecedented stocks,” another trader said. “We need to eat through floating storage before the market can really be tight.”

As a result, many buyers have tapped storage, rather than new loadings. ClipperData said some 10 million barrels of oil that was floating off the U.S. Gulf Coast had drawn down over the week after the start of the Canadian wildfires, and traders said more was expected to go.

In Europe, oil floating in the North Sea had whittled down to 5 million barrels last week from around 7 million two weeks ago, while a Total-offered supertanker of North Sea Forties crude failed to find a buyer by mid-week, according to trade sources. Light grade Saharan Blend in the Mediterranean actually saw differentials to dated Brent fall.

In West Africa, some 800,000 bpd were knocked offline over the past week by militants and an accident at an ExxonMobil pipeline. Still, at least 15 million barrels were available for export, and those were trading slowly.

One trader said that while it should be a “mega-event,” no one was in a hurry to buy.

Despite the supply glut, benchmark Brent and U.S. WTI have hit six-month highs on expectations for market tightness in the near-future. Analysts said the futures market will need to align with physical markets.

“We feel that markets have moved too high, too far, too soon,” BNP Paribas said in a note. “We still face a large inventory overhang and for the most part, the outstanding supply outages…are reversible.” (Additional reporting by Olga Yagova in Moscow, Henning Gloystein in Singapore and Marianna Parraga in Houston; Editing by David Gregorio)

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