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2009-03-04 10:27:18
By CHRIS KAHN, AP Energy Writer Chris Kahn, Ap Energy Writer Tue Mar 3, 5:41
pm ET
NEW YORK Supertankers that once raced around the world to satisfy an
unquenchable thirst for oil are now parked offshore, fully loaded, anchors
down, their crews killing time. In the United States, vast storage farms for
oil are almost out of room.
As demand for crude has plummeted, the world suddenly finds itself awash in oil
that has nowhere to go.
It's been less than a year since oil prices hit record highs. But now producers
and traders are struggling with the new reality: The world wants less oil, not
more. And turning off the spigot is about as easy as turning around one of
those tankers.
So oil companies and investors are stashing crude, waiting for demand to rise
and the bear market to end so they can turn a profit later.
Meanwhile, oil-producing countries such as Iran have pumped millions of barrels
of their own crude into idle tankers, effectively taking crude off the market
to halt declining prices that are devastating their economies.
Traders have always played a game of store and sell, bringing oil to market
when it can fetch the best price. They say this time is different because of
how fast the bottom fell out of the oil market.
"Nobody expected this," said Antoine Halff, an analyst with Newedge. "The
majority of people out there thought the market would keep rising to $200, even
$250, a barrel. They were tripping over each other to pick a higher forecast."
Now the strategy is storage. Anyone who can buy cheap oil and store it might be
able to sell it at a premium later, when the global economy ramps up again.
The oil tanks that surround Cushing, Okla., in a sprawling network that holds
10 percent of the nation's oil, have been swelling for months. Exactly how
close they are to full is a closely guarded secret, but analysts who cover the
industry say Cushing is approaching capacity.
There are other storage tanks in the country with plenty of extra room to take
on oil, but Cushing is the delivery point for the oil traded on the New York
Mercantile Exchange. So the closer Cushing gets to full, the lower the price of
oil goes.
Some oil is ending up in giant ships and staying there. On these supertankers,
rented by oil companies such as Royal Dutch Shell, there is little for crews to
do but paint and repaint the decks to pass time.
More than 30 tankers, each with the ability to move 2 million barrels of oil
from port to port, now serve as little more than floating storage tanks. They
are moored across the globe, from the Texas coast to the calm waters off Europe
and Nigeria.
"It gets expensive to do this," said Phil Flynn, an analyst at Alaron Trading
Corp. "If you're sitting on a bunch of oil and you're stuck paying storage and
insurance, and you can't find a buyer, you may have to sell it at a discount
just to get rid of it."
On the other hand, as storage units on land have filled up, the companies that
own the tankers have profited. Tanker companies charge an average of $75,000 a
day, three times as much as last summer, to hold crude, said Douglas Mavrinac,
an analyst with Jefferies & Co.
Demand for oil began to increase steadily in the early 1980s, and it went into
overdrive in recent years as the Chinese economy surged and as producers pumped
lakes of oil out of the ground to take advantage of a spike in prices. Then
recession gripped the globe, frozen credit markets made things worse, and
inventories swelled.
Refineries in the U.S. have cut way back on production of gas as the economy
weakens and millions of Americans, many of them laid off, keep their cars in
the garage.
The latest government records show U.S. inventories are bloated with a virtual
sea of surplus crude, enough to fuel 15 million cars for a year. Inventories
have grown by 26 million barrels since the beginning of the year alone. Oil
from Saudi Arabia, the United Arab Emirates and Nigeria is finding few takers,
even though much of it is used to make gasoline in the United States.
There are so many players in the international oil market that no one has
enough control to sway prices. OPEC slashed production by more than 4 million
barrels a day, and still the price of a barrel of crude languishes near $40. At
its peak, it traded at $147 a barrel.
Experts aren't sure what will happen when all that oil finally comes ashore.
One fear is that with oil prices so low, companies will slash drilling and
production, setting the world up for an energy crunch that would send prices
soaring. The number of oil and gas rigs operating in the United States has
fallen a staggering 39 percent since August.
Others say prices would plummet if companies forced millions of barrels onto
the market at once.
"If everyone's running for the exits at the same time, they'll engineer a price
collapse," Flynn said.