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Kai Ryssdal: If you subscribe to the oil prices as economic indicator school of thought, traders in New York had good news for you today. Crude closed above $59 a barrel this afternoon, a sign — perhaps — that the recession has given us its worst. Or, perhaps, those traders have it completely wrong. There are huge crude surpluses sloshing around out there. And they could keep prices under pressure for some time to come. As Marketplace’s Stephen Beard reports from London.
STEPHEN BEARD: The offices of Lloyds List, the oldest shipping journal in the world. Energy Editor Martin Wingrove peers into his computer screen. He’s tracking the movement of large oil tankers around the globe.
MARTIN WINGROVE: This one is now moored off Malta. There you go. That looks like it’s gonna have two million barrels, a very large crude carrier.
He says don’t be fooled by the rising price of oil, or the recent dip in U.S. inventories. The world is awash with crude.
WINGROVE: There is plenty of supply. And all the onshore storage is filling up. And is likely to be full in the very near future.
Within a couple of weeks, according to the Goldman Sachs. The bank reckons that every major onshore oil storage facility will be full by June. Simon Wardell of Global Insight says the world has never had more oil in reserve.
SIMON WARDELL: It’s 2.9 billion barrels at the moment, which is about as high as it’s ever been, certainly in terms of absolute numbers.
Oil producers have cut their output. But demand has fallen even more. Faced with the growing reservoir of unwanted crude, with onshore storage tanks bursting at the seams, oil companies have taken their product offshore. They’re storing it at sea. Axel Busche is with the Energy Intelligence Group.
AXEL BUSCHE: Oil companies and traders are taking their barrels and stuffing them into very large crude oil carriers tankers, which they then sit in strategic places around the world.
Fifty-two supertankers are now loitering at sea in places like the Gulf of Mexico. They carry 130 million barrels of oil. They are sitting out the recession, waiting for the global economy to recover. For the price of oil to take off again. They could have quite a wait says Simon Wardell. Speculators have been piling into the oil futures market and buoying up prices but that’s no substitute for real demand.
WARDELL: You can’t support these price moves just with financial-and-investment-class movements in the markets. You need real fundamental support to see it. And we’re not seeing it at the moment. So we’re concerned that prices are going to sink quite sharply.
Leo Drollas of the Center for Global Energy Studies says that the world’s ever-growing stockpiles of oil are a boon. They’ll put a brake on future price rises.
LEO DROLLAS: They’re so much oil stored that when demand recovers, it doesn’t mean that the price shoots up because a lot of this oil will come out from storage, which prevents the price from soaring.
BEARD: And choking off the economic recovery.
DROLLAS: And choking off the recovery.
In spite of stock market optimism, that recovery still seems a long way off. The International Energy Agency has just forecast a further drop in oil demand this year. Oil stocks seem set to grow even bigger.
In London, this is Stephen Beard for Marketplace.
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