Saldanha oil tanks off limits to many as market floods

Oil tanks at one of the world’s largest storage hubs are filling up fast, reported people familiar with the matter, depriving many traders of vital capacity just as the market has been hit by a historic flood of crude.

The 45-million-barrel Saldanha Bay oil storage terminal in the Western Cape, the largest in the southern hemisphere, has been a vital outlet for surplus crude during past slumps, including the Great Recession of 2008 to 2009.

This time around, as the combination of the Covid-19 coronavirus pandemic and Saudi Arabia’s price war with Russia creates a record-breaking oversupply, its role may be more limited.

The facility is close to full, said four people with knowledge of the site’s operations. Several other people said all of the capacity there had been leased to trading houses, but space remained in some of their tanks and they expected additional crude deliveries.

A spokesperson for South Africa’s Central Energy Fund, which manages the country’s energy assets, declined to comment.

Saudi Arabia is only a couple of days into a record supply surge above 12 million barrels a day, but the oil market has already been contending with a vast surplus for weeks.

International lockdowns aimed at slowing the spread of Covid-19 are emptying roads, shutting businesses and factories, and keeping billions of people at home.

Oil has slumped 60% this year as about a quarter of global demand was wiped out. The market structure is deep into contango – when future prices are higher than near-term contracts – making it profitable to store the commodity for any trader with access to tanks.

Multiple analysts have predicted that, based on current supply, demand and inventory levels, the world is just weeks away from running out of places to store the glut.

Saldanha’s six tanks – completed in the 1980s during the apartheid era to ensure a regular oil supply for the then politically isolated country – are generally leased out to trading companies.

A joint venture of Hamburg, Germany-based Oiltanking and local company Mogs Oil & Gas Services, has been building additional storage for more than 13 million barrels.

These are smaller tanks that allow more flexible blending options. – Bloomberg

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