Tanker market warns oil rally is under danger; Glut is yet to be dispelled

The tanker market is sending a clear signal that the oil rally is under danger, says Bloomberg.

A surprising rise in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20.

At the beginning of June, OPEC will have almost half a billion barrels of oil in transit to buyers - the most this year. Meanwhile, analysts say that about 20 million barrels is being stored on ships in another indication the glut is not dispelled yet.

The cartel is producing the most oil in more than two years, in an effort to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. About 1.9 million barrels a day is produced globally, more than the world needs, according to Goldman Sachs Group Inc.

Nigel Prentis, the head of research at Hartland Shipping Ltd. in London, said that there seems to be a lot of physical activity, a lot of oil on the water. Although the second quarter is usually quieter as refineries switch to summer fuels for the northern hemisphere, “the market is still busy and rates are incredibly high,” he said.

According to the Baltic Exchange in London, daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

OPEC’s members will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, said Roy Mason, founder of Oil Movements, a Halifax, England-based company monitoring the flows.

As shipping programs say, Iraq, the group’s second-largest producer, is planning to increase exports to a record 3.75 million barrels a day next month.

Spare tanker capacity in the Middle East has barely been tighter. Last week, the combined excess of ships competing for the region’s exports stood at 6 percent, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. Although this rose to 12 percent this week, the monthly average was still the lowest on record for May.

The capacity of the global tanker fleet has been further constricted by investors storing oil at sea who seek to profit from longer-dated futures contracts costing more than near-term supply. About 20 million barrels is being stored, analysts say.