Oil Tanker Storage Surges as Russia and Iran Face U.S. Sanctions

The U.S. sanctions on Russia and Iran have led to an “unprecedented” large volume of crude oil stored in tankers, Torbjörn Törnqvist, co-founder of commodity trading giant Gunvor Group, said on Wednesday.

“This is unprecedented, the size of that. Therefore, obviously, if all sanctions would disappear, this market would clearly be quite oversupplied,” Törnqvist said at the ADIPEC energy conference in Abu Dhabi, as carried by Reuters.

While ample supply is reducing volatility in the oil market, the sanctions have created an “enormous amount” of dislocated oil, some of which is being held on tankers worldwide, according to Gunvor’s top executive.

Gunvor, by the way, is set to buy the international business of Russian oil giant Lukoil, after the U.S. slapped sanctions on Russia’s top oil firms, making doing business with their international subsidiaries extremely complex and nearly impossible.

Gunvor’s view of enormous volumes of oil on water is shared by other major commodity trading houses.

At the same ADIPEC conference, Marco Dunand, the CEO and co-founder of Mercuria, said that next year supply could exceed demand by as much as 2 million barrels per day (bpd). However, sanctions and their implementation would be a wild card in assessing the overhang, Dunand added.

“That probably means that from a 2 million barrels a day surplus we move more into the 1 million barrels a day surplus,” Mercuria’s chief executive said.

“It is true that the inventories are low. It is also true that oil on the water is high, so the glut is forming slowly and probably going to hit the market in the next few months.”

The market expects a glut, but analysts diverge on estimates of the size of the oversupply, with forecasts ranging from a super-glut of record proportions to more modest inventory increases in the historically weaker demand period in the first quarter of any year. The impact of the U.S. sanctions on Russia’s top oil firms is one of the biggest unknowns in the current estimates.

By Tsvetana Paraskova for Oilprice.com

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