Shortage of Caribbean Storage Forces Some Crude Sales at Loss

A saturated oil storage network in the Caribbean is forcing some South American and African producers to keep selling crude at prices that do not cover production costs, brokers and sources told Reuters.

 

Low price environments typically motivate producing and trading companies to store more crude while waiting for a better time to sell, but a lack of available storage tanks in the Caribbean is leaving them with few options.

 

"It's a death spiral, a race to the bottom," an oil tank broker said on condition of anonymity, explaining how oil firms are selling at any price because storage facilities are even fuller now than in the last quarter of 2015.

 

The broker added that the high cost of renting vessels for use as floating storage facilities made that option unaffordable for many.

 

Latin American state-run producers including Venezuela's PDVSA and Brazil's Petrobras are dependent on Caribbean storage facilities because their domestic networks are not big enough to store the extra oil. Many African producers also store in the region.

 

Regular buyers and sellers of Latin American and African crude, such as PetroChina Co, Valero Energy (VLO), NuStar Energy, Royal Dutch Shell (RYDAF), Statoil (STO) , Gunvor and Vitol also use storage tanks in the Caribbean, which has 115 million barrels in capacity, excluding refineries' storage.

 

Venezuelan and Colombian grades made with imported naphtha or light oil have been sold at a loss since January, according to traders, even though producers recently announced strategies to cut costs and avoid further losses. Ecuador also said it is selling its oil at a loss.

 

Oil tank owners are seeing a boom. U.S. Buckeye Partners , the Caribbean's largest oil storage participant, said its utilization rates at New York Harbor and the Caribbean increased to 98 percent in the last quarter of 2015, which was 9 percent higher than a year ago.

 

"As we continue to benefit from robust demand for our storage and service capabilities, we were able to successfully recontract over 18 million barrels during the year at favorable terms," Khalid Muslih, president of Buckeye Partners' Global Marine Terminals, said in a conference call on Friday to report 2015 results.

 

The Texas-based company has been converting fuel oil tanks at its terminals in the Bahamas and St. Lucia into flexible services and is expected to complete work during 2016 to capture incremental demand.

 

A source from a trading firm renting space in one of Buckeye's terminals told Reuters that tanks have been getting full recently, including crude and clean products.

 

Another source from a an oil company with available space in the Caribbean said the firm is waiting for the right moment to sublease at a higher rate.