Oil prices slip as floating storage comes onshore

Destocking is now well underway in crude oil markets. This is focused on the vast amounts of floating storage that built up in H1.
According to a Financial Times analysis, April saw 56 ships being used for storage, versus a normal level of 5 – 7 vessels.
29 ships are still in use today, with c50-60 mbbls in store. But the price incentive for this storage has disappeared, with future month prices only c$5/bbl higher than spot. As the chart shows, this ‘contango’ had reached nearly $24/bbl earlier in the year, allowing traders plenty of margin to sell forward on a risk-free basis, as floating storage costs just 50-60c/bbl.
The first stage of the destocking process caused oil prices to stabilise around $70/bbl. Now, though, there are signs that the next phase could take prices lower, as a major increase in demand seems unlikely. As Petromatrix note, September’s US auto sales are likely to be the lowest of the year, now the scrappage scheme has ended.