Supertankers hauling crude to China are contending with increased waiting times to unload as some on-land storage depots reach capacity amid an oil-buying binge by the world’s most populous nation.
At least 19 two-million-barrel-capacity ships – known as VLCCs – were stationed off China’s coast for two weeks or more, according to vessel-tracking data compiled by Bloomberg on October 9.
In normal market conditions, most would normally arrive at a port and depart within a day, according to George Los, a New York-based analyst at shipbroker Charles R. Weber.
As delays have increased, benchmark daily earnings for the tankers jumped above $100,000 this month for the first time since the global recession.
This tanker traffic jam shows just how much crude the world’s second-biggest importer is buying at a time when economic growth is forecast to slow to the lowest level in 25 years. China’s purchases have jumped almost 10% this year from 2014, and could help keep prices from crashing to levels envisioned by banks such as Goldman Sachs, which has said $20 a barrel oil is possible.
“It’s the same as your closet being full of clothes, but you keep shopping if you see a bargain,” said Halvor Ellefsen, a ship broker at Galbraith’s Ltd. in London, which arranges vessel charters. “The oil price is low, and we are soon into the winter season, when more oil will be needed.”
The delays in unloading are being caused by a lack of space in some storage tanks as China increases cargo purchases, according to Ellefsen.
The country has amassed 200 million barrels of crude in reserves as oil prices slump, and aims to have 500 million barrels by the end of the decade, according to the International Energy Agency in Paris. The delays could get worse because of a surge in bookings last month that will result in even more ships arriving later this year.
Day rates for ships delivering Saudi Arabian crude to Japan, a benchmark route, reached $106,381 on October 5, the most since July 2008, data from the Baltic Exchange in London showed. That’s about 10 times more than operators need to cover daily running costs including crew, repairs and insurance, according to estimates from Moore Stephens, an industry consultant. Daily earnings on the benchmark route fell as low as $7,850 in August 2012 amid a vessel glut.
The jump in rates has boosted owners of the ships, according to Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo. Euronav NV, Europe’s biggest owner, rallied about 3% in Brussels this year, extending an 20% advance in 2014. Frontline Ltd., led by billionaire John Fredriksen, surged about 40%, while DHT Holdings Inc. added about 15%.
China’s oil purchases have averaged 27.58 million metric tons a month in 2015, a 9.8% increase compared with the corresponding period last year, customs data show. That’s a faster rate than the nation’s economic growth, which will drop to 6.8 percent in 2015, the weakest since 1990, according to economist forecasts on Bloomberg.
China’s import demand can swing by as much as 1 million barrels a day, or about 15% above monthly average levels, said Colin Fenton, a fellow at the Center on Global Energy Policy at Columbia University in New York. Because the country buys when prices dip, it should effectively make $30 the floor for Brent, the global benchmark, he said.
Brent closed at $52.65 a barrel on Friday, down 8.2% this year. Futures dropped 0.2% to $52.55 as of 2:10pm in London.
In the first seven months of the year, China purchased about half a million barrels of crude in excess of its daily needs, the most for the period since 2012, according to data compiled by Bloomberg.
Chinese traders booked a record number of ships in the spot market during the week ended October 2, and when those tankers deliver their crude cargoes, it could add to the waiting times, said Los at Charles R. Weber.
The influx of oil has already created what ship operators call ullage issues, in which shore tanks are so full that they must be emptied before vessels can unload.
“With the ullage delays remaining high, the eventual arrival of more units will likely lead to a continuation of elevated delays,” said Los.