Strait of Hormuz fills up with loaded tankers without a clear destination

The energy world has been transformed over the past two months. The crude oil market has gone from a substantial surplus that forced the Organization of the Petroleum Exporting Countries (OPEC) to curb its own output to prevent prices from plummeting, to a critical situation: overnight, with the closure of the Strait of Hormuz, almost a fifth of global production has vanished. Nearly half of that amount has been offset, both by increased shipments through the few pipelines connecting the Persian Gulf countries to the outside world and by the still-nascent production increases at fossil fuel giants outside the region. But the shortfall remains enormous.

Every barrel counts in the face of this sudden shortage, which has driven crude oil prices to levels not seen since Russia’s invasion of Ukraine in 2022. But it wasn’t always like this. The oil market even has a term for cargoes that can’t find a buyer: floating storage units. These are ships full and ready for delivery but without a clear destination, either because there is no immediate buyer, because the seller is waiting for better prices, or simply due to logistical bottlenecks. These ships could typically spend up to a week at a time berthed, sometimes longer.

Under normal circumstances, such as before the United States and Israel attacked Iran on February 28, these tankers are a marginal part of the market: they transport barely a hundred million barrels, just enough to cover one day of global demand. Now, however, with the market in turmoil and importing countries facing increasing difficulties in supplying their refineries, floating production storage and offloading (FPSO) reserves have taken on a crucial dual role.

On the one hand, Gulf countries continue loading tankers despite the closure of the Strait of Hormuz, largely to store the oil they continue to pump, thus swelling their inventories while awaiting an agreement between Washington and Tehran that has yet to materialize. Floating reserves in the region, including Iranian crude — a country that, after the double U.S. blockade of the strait, is struggling to store what it extracts but cannot sell: its onshore storage facilities are nearing capacity — have almost tripled in two months of the blockade, exceeding 130 million barrels, according to data provided to EL PAÍS by the specialized firm Kpler.

On the other hand, outside the strait, oil that no one wanted before is finding buyers much more easily: a tanker full of crude oil is now worth exponentially more than at the beginning of the year. With the war against Iran entering its third month, inventories have already fallen by 15% in the rest of the world, according to Kpler figures.

“In this crisis, reserves have become the primary market adjustment mechanism,” writes Natasha Kaneva, head of commodity strategy at the U.S. investment bank JP Morgan, in a recent client analysis. “Unlike a typical shock, where spare production capacity can be quickly mobilized, the location of the shock [the Middle East] and the magnitude of the current supply losses mean that the adjustment must come from barrels already in storage. Simply put, inventories are acting as the shock absorber for the global oil system.” A cushion that, however, has its limits.

The most striking decline is in West Africa, where unsold crude has halved since the closure of the Strait of Hormuz. Russian oil, now freed from U.S. sanctions to cushion the impact on gas prices — the only thing Donald Trump cares about, as he fears voters will turn against him in the midterms on November 3 — has seen its floating stockpiles shrink by a quarter, reversing the upward trend of previous months. This data allows us to infer one thing clearly: in times of scarcity, Russian oil, once considered toxic in the West, is easily finding buyers.

A similar situation is occurring in Latin America, one of the regions of the world with the largest volumes of floating reserves. After several months of increases, a trend exacerbated by the U.S. embargo on Venezuela, the recent closure of the Strait of Hormuz has completely reversed this trend: since the end of February, crude oil loaded onto ships awaiting buyers has fallen by a fifth.

Crude oil of unknown origin

While the rest of the market shrinks, crude oil of undeclared origin has doubled to 12 million barrels. Much of it is legal oil that, due to being mixed or resold multiple times, has lost its traceability.

However, some of it comes from what the market calls the “phantom fleet.” These are tankers dedicated to evading international sanctions by disguising oil of banned origin, such as from Iran, and pretending it comes from another source. In the case of Iranian oil, it is often shipped across the border into Iraq to pass it off as Iraqi oil.

One of the few oil tankers that has managed to cross the Strait of Hormuz since the start of the war is the Kylo, ​​a vessel that had already been sanctioned by the U.S. and the U.K., among other countries, after transporting Iranian and Russian crude. Since the beginning of the war, the Kylo has crossed the strait not once, but twice. It entered the Gulf at the end of March, loaded up in Iran, and left again in the first week of April. This tanker, owned by a company based in the Marshall Islands, docked in Singapore at the end of April, bound for China. Its position has not been updated since April 28.

15 million barrels of diesel at sea

Not all of the floating stockpile is crude oil. Refined products — those ready for use in cars, ships, airplanes, or industry equipment — now account for at least 15% of the cargo on tankers ready for delivery. Kpler tracks the evolution of inventories of gasoline, diesel and jet fuel, three key fuels for the global economy. Combined floating stockpiles have increased from less than 25 million barrels to around 30 million at the end of April, a surge largely driven by vessels detained in the Middle East. No other region shows a comparable increase.

Diesel fuel is the most prevalent petroleum product in global floating storage reserves. This product exceeds 15.5 million barrels stored at sea, 15% more than at the beginning of April, although it has decreased in most regions. In Europe, the starting point was very low, at around 200,000 barrels, which explains why it has quadrupled to over 800,000. This is still a drop in the ocean compared to the tens of millions of barrels in major source areas, such as the Black Sea, Russia, and the Gulf.

Floating gasoline stocks, meanwhile, were approaching 14 million barrels at the end of April, a third more than at the start of the war. Unlike diesel, gasoline stocks in Europe started from a high base at the beginning of the war.

The story is different for aviation fuel, which is the subject of growing warnings from the International Energy Agency (IEA) due to flight cancellations already announced worldwide and an increasing risk of shortages in Europe starting in the summer, when consumption increases due to greater holiday activity.

Kerosene has never been a significant part of the floating reserves: it usually hovered just above one million barrels, while diesel and gasoline typically exceeded 10 million. Now, with the blockade in the Strait of Hormuz, it has reached 2.4 million barrels. Most of it, however, is within the Gulf and therefore inaccessible to the market. A jewel kept under double lock and key. The big question now is whether Trump and the ayatollahs have a copy of the keys.

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