(Bloomberg) — South Korea has run out of commercial storage space for oil, according to people with knowledge of the matter, a development that’s likely to intensify a global scramble for tankers to store crude and fuels.
All of the around 38 million barrels of onshore commercial capacity owned by state-run Korea National Oil Corp. and Oilhub Korea Yeosu Co. is rented out, said the people who didn’t want to be identified as the information is private. While some short-term leases are set to expire later this year, the space will be set aside for strategic or logistical purposes, one of the people said.
While coronavirus lockdowns have eviscerated energy demand, many refiners can’t completely halt fuel production due to existing long-term supply agreements, increasing the need for tanks to store excess cargoes. Some of these processors, as well as traders, are also keen to buy crude at low prices and sell it later. Brent for December delivery is more than $10 a barrel pricier than the June contract, a market structure known as a super contango.
With some of Asia’s biggest and most sophisticated oil refineries, South Korea 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.”
In South Korea, oil storage tanks are categorized as commercial or public, with the latter category including space set aside for strategic stockpiles as well as for use by local refineries. Korean processors have been asking for access to public tank space, 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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KNOC has around 96 million barrels of capacity for the nation’s strategic reserves, according to a spokesperson who asked not to be identified due to company policy. It’s unclear whether this is full or not.
Inventories in other Asian countries such as India and the regional oil hub of Singapore are also filling fast, while the situation in China isn’t clear as 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.”