OPEC Oil Storage Hits Multi-Month Highs Amidst US Sanctions

Due to intensified US sanctions, the volume of Russian and Iranian oil stored on ships has reached its highest levels in months. The sanctions have reduced the pool of available tankers to transport the oil, leading to higher freight costs and increased crude prices.

Impact of US Sanctions on Iran

Multiple rounds of sanctions imposed by the US on Iran since October have disrupted trade with China and India, major importers of Iranian oil. US President Donald Trump's "maximum pressure" campaign aims to eliminate Iran's oil exports, preventing Tehran from developing nuclear weapons.

Despite finding new shipping capacity, China's Shandong Port Group's recent ban on sanctioned tankers has further hindered the delivery of Iranian oil to major buyers. As a result, an estimated 10-20 million barrels of Iranian oil have been stored on floating vessels this year.

Iranian Oil in Floating Storage

Estimates of the precise volume of Iranian oil in floating storage vary due to different tracking methodologies employed by analysts. Kpler data indicates over 25 million barrels, with 80% concentrated off Singapore and Malaysia. In contrast, Vortexa Analytics estimates the volume at 73.1 million barrels as of January.

Impact on Prices

The decline in available tankers to deliver oil to China has boosted crude prices. Discounts on Iranian Light crude have narrowed to a multi-year peak of 50 cents per barrel against ICE Brent.

Russian Oil

Tighter US sanctions imposed on Russian oil have raised costs for refiners in China and India. ESPO Blend crude is being traded at premiums of $2-$3 per barrel over ICE Brent, the highest in over two years.

Transport costs have also escalated due to the limited availability of vessels. The cost of shipping oil from Russia's Far East to North China has nearly tripled since the sanctions.

Russian Crude-on-Water

Russian crude-on-water reached a two-month high of 88 million barrels on January 27. While the volume has since declined, it remains elevated as exports have slowed. Some vessels previously used for Iranian oil trade are now being deployed for Russian oil.