(Bloomberg) -- South Korea has run out of oil storage space that can be leased to third-party companies, according to people with knowledge of the matter, as a global glut spurs a scramble for places to store {{8849|crude }.
State-run Korea National Oil Corp. currently rents out about 30 million barrels of onshore tank space to third parties including international traders and producers. Such leasees typically rent these tanks to support trading and supply activities in the region under what’s known as the joint-stockpiling scheme, which requires them to divert inventories to domestic users in the event of an emergency. Oilhub Korea Yeosu Co., in which KNOC has the largest stake, also has 8.2 million barrels of storage capacity for commercial use.
While some short-term leases by KNOC are set to expire later this year, the freed-up storage space will likely be set aside for strategic purposes, or to help local fuel producers with logistical demands, one of the people said. The people that Bloomberg spoke with could not be identified as they aren’t authorized to speak publicly.
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Coronavirus lockdowns have eviscerated energy demand worldwide, although many refiners can’t completely halt their activities due to existing fuel supply contacts to some customers. Such processors are, however, running at lower operating rates, which means they need storage space for both crude and fuel.
Many traders as well as refiners across the globe have also been scrambling to get their hands on tank space as the lure of cheap oil and favorable market conditions makes the strategy attractive. London’s Brent crude for December delivery is almost $12 a barrel pricier than the June contract in what’s known as a super contango, where future supplies of crude are much pricier than prompt cargoes.
South Korea, home to some of Asia’s biggest and most sophisticated oil refineries, has the fourth-largest commercial storage capacity in the region after China, Japan and India, according to Kayrros, an energy markets data analytics company. The country is a popular spot to keep crude and fuels due to its proximity to the other big Northeast Asian economies.
“In terms of filling of crude tanks, we see a massive increase in Asia excluding China,” said Alexis Berson, a senior analyst at Kayrros in Singapore. “In South Korea, the trend in the last two weeks has been a gain of 8 million barrels and that’s something that has not happened in the past.”
Hunt for Storage
Fuel consumption across Asia has plummeted as millions of people hunker down at home to curb the spread of coronavirus. In South Korea, refiners have been asking for access to public tank space due to muted demand, the people said. Some companies have also stepped up their hunt for vessels to hold oil at sea, prompting a spike in the number of tankers chartered for such purposes.
A KNOC spokesperson said the company couldn’t comment on the matter due to confidentiality agreements.
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Apart from tanks that are leased to third-party companies via the joint-stockpiling scheme, KNOC also has facilities to hold South Korea’s strategic reserves. Overall, the company has a storage capacity of around 140 million barrels, according to a KNOC spokesperson who asked not to be identified due to company policy.
Across Asia, oil inventories in countries such as India and the regional oil hub of Singapore are also filling fast, while the situation in China isn’t clear as official data on storage isn’t available.
“We still have some room for land storage, but spare capacity is decreasing fast in main hubs like India, South Korea and Japan,” Berson said. “We need to see shut-ins happening so that we don’t see tank-top situations occurring.”
(Updates with details throughout.)
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