The Trends in Floating Oil Storage

03 April 2025  Signal 

The floating oil storage sector has undergone marked fluctuations since 2020, attributable to global economic circumstances, war sanctions, geopolitical tensions, and evolving market forces. Principal determinants affecting storage utilisation encompass the COVID-19 pandemic, imposed sanctions, oscillations in oil prices, and the strategic measures undertaken by Western, Middle East, and Asian markets. The influence of Iranian oil reserves, Saudi Arabia, and OPEC in determining supply-demand equilibriums is of considerable significance. Concurrently, emerging risks and legal complexities are increasingly becoming prominent.

The historical timeline of key events influencing floating oil storage trends

The Impact of COVID-19 (2020-2021)

At the onset of the COVID-19 pandemic, the oil tanker storage market witnessed an unprecedented surge as global lockdowns and travel restrictions drastically reduced oil demand. The sharp drop in consumption led to a supply glut that overwhelmed onshore storage capacity, making floating storage units a crucial alternative for oil traders and producers. As storage terminals filled up, companies turned to Very Large Crude Carriers (VLCCs) and other oil tanker storage to store unsold crude, significantly altering the dynamics of global energy markets.

Oil tankers, which were traditionally used for transportation, were increasingly repurposed for long-term storage, driving up tanker charter rates to record highs. This reshaped global crude trading patterns, as vessels idled offshore in strategic locations such as Singapore, the U.S. Gulf Coast, Middle East, and the North Sea, waiting for demand recovery or favourable price conditions.

In April 2020, oil prices experienced a historic collapse, with West Texas Intermediate (WTI) crude briefly trading in negative territory for the first time. This extreme price movement was driven by a confluence of factors, including plummeting demand, storage shortages, and logistical bottlenecks. The situation incentivised traders to capitalise on the contango market structure, where future oil prices were significantly higher than spot prices. This encouraged large-scale stockpiling on tankers, as companies sought to profit from holding crude for future resale at a premium.

By late 2021 and into 2022, as widespread vaccination programs facilitated economic recovery, global oil demand rebounded. The gradual reopening of industries, resumption of travel, and increased energy consumption led to a steady drawdown of stored crude. As a result, floating storage volumes declined, and tanker charter rates began to stabilise. Market normalisation followed, with oil supply and demand dynamics returning to more traditional patterns.

Sanctions, Geopolitics, and the Role of OPEC+ (2022-Present)

Russia-Ukraine Conflict and Sanctions on Russian Oil

The 2022 Russia-Ukraine war fundamentally transformed the global crude oil trade, disrupting established supply chains and maritime logistics. Western war sanctions against Russian crude forced traders to find new markets, causing a dramatic shift in oil flows and trade routes. This, coupled with regulatory constraints and logistical bottlenecks that slowed the movement of sanctioned oil, led to a surge in demand for floating storage.

Before the war, Russia’s Urals blend crude was a key supply source for European refiners. However, the EU embargo and G7-imposed price caps on Russian crude and refined products dismantled traditional trade corridors, forcing Russian oil to pivot towards Asia. China, India, and Turkey emerged as dominant buyers, capitalising on discounted pricing to secure a steady inflow of Russian crude. China and India significantly increased imports, refining the oil domestically and, in some cases, re-exporting products to Western markets. Turkey positioned itself as a crucial transit and blending hub, facilitating the movement of Russian crude while maintaining its role as a bridge between sanctioned and non-sanctioned trade flows.

As Russian oil found new destinations, floating storage and shadow fleet operations played an increasingly vital role in sustaining these alternative trade routes. The displacement of Russian crude led to congestion in transit corridors and heightened reliance on offshore storage, as shipments faced prolonged delays due to logistical challenges and evolving sanctions compliance. The so-called dark fleet—a growing network of aging, under-the-radar tankers operating beyond mainstream regulatory oversight—expanded rapidly to facilitate sanctioned oil shipments. Many of these vessels were reflagged under jurisdictions with minimal compliance requirements, bypassing Western maritime insurance to continue operations. Some were repurposed as floating storage units, particularly in international waters where enforcement mechanisms were weak, allowing sanctioned oil to be transferred or blended before reaching its final destination.

The geopolitical crisis has triggered a major shift in global crude trade, leading to longer voyage distances, higher freight costs, and increased market fragmentation. This has permanently reshaped traditional shipping patterns and global oil flows. With ongoing geopolitical tensions, the future remains uncertain. However, the crisis has underscored the growing importance of sanctions-compliant maritime logistics and alternative supply routes.

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