As demand declines, oil tankers lower anchors

Chris Kahn ASSOCIATED PRESS
Wednesday, March 4, 2009

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.

AGENCE FRANCE-PRESSE/GETTY IMAGES Oil tankers are anchored off Singapore in this August 2005 file photo. With oil prices hovering around $40 a barrel, companies are stashing oil in rented tankers like these, hoping for global demand, and prices, to pick up once again. But renting the tankers can cost $75,000 a day.

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 always have 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.

Click here for reprint permissions!
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Comment on and rate this Article

 

  Forgot?

Not a member yet?

Register Here

You Report

Do you have another point of view, photos, audio, video or more information about a story?