Bloomberg

(Bloomberg) -- Europe’s oil-trading hub is fast filling up with what may be record amounts of crude and strikes in nearby France are to blame.

Crude inventories in an area known by oil traders as ARA -- Amsterdam, Rotterdam and Antwerp -- jumped by more than 3.5 million barrels to 65.635 million barrels in the week ended June 17, according to data from Genscape Inc. That’s the most since the company began monitoring in 2013 and the supplies occupied 73 percent of available space. Stockpiles of oil in all of the Netherlands and Belgium haven’t exceeded 65 million barrels for at least 11 years, International Energy Agency data compiled by Bloomberg show.

While there’s growing consensus among oil traders and analysts that a global crude glut is starting to erode, the buildup shows how vulnerable the market remains when local demand disruptions arise. French industrial action knocked out as much as 900,000 barrels a day of the country’s refining at one stage in June, about equal to the entire daily shipments of crudes that make up Dated Brent, a global benchmark.

“There was a lot of capacity that was offline and tankers could not discharge” at a key port in northern France, said Olivier Jakob, an analyst at Petromatrix GmbH in Zug, Switzerland. “There may have been some redirection of tankers going for storage in ARA.”

Eighty-four of the ARA hub’s 153 crude storage tanks at independent sites are now more than 75 percent full, while 55 are between 15 percent and 75 percent full, Genscape’s data show. There are zero empty tanks and only a few are even close to empty, according to Paulo Nery, London-based senior director for oil and shipping of Genscape. Traders also reserve space, meaning that the amount available is probably even lower than Genscape’s figures suggest.

“There are literally only four near-empty tanks at somewhere between 10 percent and 15 percent. In January there were 18 tanks at less than 15 percent,” Nery said. “It’s pretty empirical” proof that inventories are filling.

At least three crude tankers with 5 million barrels of cargo-carrying capacity had to divert north from Le Havre on France’s northern coast in May and June amid industrial action at the port and refineries that are mostly close to the coast. Two of the vessels went to Rotterdam.

The strike will have cut France’s average refining output by 150,000 barrels per day in May and 300,000 barrels per day this month, the International Energy Agency said in a report June 14. At the height of the action, at least four of the country’s eight plants were halted and a fifth ran at reduced capacity in late May and early June, curbing as much as 900,000 barrels a day at one point. That’s about the same as average loadings of Brent, Forties, Oseberg and Ekofisk last year, according data compiled by Bloomberg.

Impact from the French strike isn’t just being felt in crude storage. Demand for cargoes of newly pumped crude is weakening, a situation that is apparent in the price structure of derivatives linked to North Sea oil. A handful of cargoes have taken longer than normal to sell in the North Sea. Total SA, one of the companies affected by the French industrial action, took delivery of a cargo of Forties crude onto a supertanker called Maran Thetis in April and was still trying to sell it as recently as last week.

The buildup of stored oil may not last long since the strikers have agreed to restart the plants. Refining rates have dropped in Europe in recent months, primarily because of the industrial action, prompting a large drop in inventories of diesel, according to Ehsan Ul-Haq, senior oil market analyst at KBC Energy Economics. That may have created an opportunity for refiners to build up crude stocks so they can process more of the barrels and replace the missing diesel, he said.

“It might have prompted refiners to build stocks and increase middle distillate yields, and now to make up for the loss of middle distillates refiners might be increasing their run rates” Ul-Haq said. “Crude stocks continent-wide are already ample but refiners probably still want to avail of the opportunity to increase runs if middle distillate stocks are low.”

Stockpiles of diesel and gasoil in ARA have dropped for the past 4 weeks to 3.076 million metric tons, according to data from PJK International. That’s the longest run of declines since April 2014 and leaves stockpiles of the fuels at their lowest in a year, the data show.

To contact the reporter on this story: Bill Lehane in London at blehane@bloomberg.net. To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, John Deane

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