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ANALYSIS: Oil in floating storage rebounds to three-month highs

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ANALYSIS: Oil in floating storage rebounds to three-month highs

Highlights

Oil offshore China grows as Delta variant weighs on demand

152 million barrels of crude and condensate held in tankers:Kpler

Iran builds massive oil armada as Us sanctions remain in place

The volume of crude oil and condensate in tankers worldwide is starting to once again rebound as sanctioned Iranian oil starts to mount up, while oil offshore China is also on the rise as its crude demand starts to slow.

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Despite a strongly backwardated structure in the Brent crude market discouraging storage, volumes are on the rise as the global demand recovery remains uneven. Uncertainty over nuclear deal talks with the US is forcing Iran to build its offshore oil storage at a steady pace as it still remains in the grip of US sanctions. While demand concerns in China brought upon by the spread of the COVID-19 Delta variant are weighing on oil market fundamentals.

Data intelligence firm Kpler estimates volumes of crude and condensate in floating storage amounted to a three-month high of 152 million barrels for the week beginning Aug. 23.

The Kpler data estimates the volume of oil on tankers idled offshore for seven days or more.

Floating crude volumes slumped to 125 million barrels in mid-January, after peaking at over 248 million barrels in late June 2020.

Around 48 million barrels of this floating storage is outside China, the world's largest crude oil importer.

Recent Chinese oil import data, manufacturing markers and export orders have all signaled weaker oil demand as a result of increased restrictions due to the spread of the Delta variant. S&P Global Platts Analytics noted that China's onshore stock levels have also been high in recent weeks.

"Talk of potential distressed floating storage is surfacing as the anticipated extra supply could cause logistical issues for traders to find a home as the demand lags," Platts Analytics said in a recent note. "Onshore draws continue to moderate. Underway volumes drop meaningfully suggesting less refiner buying."

Iran's floating oil storage grows

As Iran's full return to the oil market continues to be delayed due to the lack of a new nuclear deal with the US, the sanctions-hit country has continued to resort to hoarding a large amount of oil on water.

Iran's oil tankers were holding over 60 million barrels of crude and condensate at sea as of end-August, according to S&P Global Platts estimates. A large share of this accounts for Iranian condensates such as South Pars condensate, data showed.

These are similar levels to mid-2019, when Iran accumulated around 60 million barrels of crude and condensates, according to S&P Global Platts estimate, as US sanctions and a lack of buyers squeezed the OPEC member's crude sales.

These volumes are scattered across the Middle East and Asia, with most of these tankers floating off the coast of Iran, Malaysia, China, Indonesia and the UAE.

Iran has always resorted to floating storage for its crude under the previous Western sanctions on its oil, which ran from 2011 to 2016 and then from 2018 onwards.

Iran's crude oil output has also been on the rise in recent months.

Iran produced 2.52 million b/d in July, its highest since April 2019, according to the S&P Global Platts OPEC survey. Immediately prior to the US re-mposing sanctions in 2018, Iran pumped at a peak of 3.8 million to 3.9 million b/d.