In an oil sector first, the oil-rich United Arab Emirates (UAE) has offered free oil to India in return for a storage deal at India’s planned underground facility as the supply glut worsens and some analysts predict that ‘’peak storage” could sending prices crashing further.

The UAE’s Abu Dhabi National Oil Company (ADNOC) has agreed to store crude oil in India's maiden strategic storage facility, sweetening the deal by saying India could take two-thirds of the oil for free.

It’s a great deal for India, which is almost fully reliant on imports to meet its crude oil needs.

India has lured Abu Dhabi in with the building of a massive underground storage facility system that will be able to take on 5.33 million tons of crude as a bulwark against global price shocks and supply disruptions. Related: Rig Count Plunges Yet Again, Down Another 30

ADNOC is eyeing half the storage capacity at one of the new underground facilities, Mangalore, which has a 1.5-million-ton capacity on its own. Abu Dhabi plans to stock 0.75 million tons, or 6 million barrels of oil, here, and 0.5 million tons will belong to India.

The deal is reflective of a wider, global storage panic and talk of what could happen when we reach ‘’peak storage’’. A number of analysts have suggested that oil prices might crash to $20, or even $10 a barrel, if storage tanks become full.

Storage is now at the highest level in at least a decade.

In the U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 490 million barrels hit earlier this year. Related: In Spite Of Its Vast Oil Reserves, Cuba Fails To Woo Investors

According to the U.S. Energy Information Administration (EIA), about 60 percent of the U.S.’ working storage capacity is filled.

Globally, the picture isn’t much better, with the International Energy Agency (IEA) saying that 1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles in OECD countries currently exceed the running five-year average by 210 million barrels.

This has given impetus to more creative storage ideas and will at least be a boon to massive storage projects such as India’s.

Floating storage—a more expensive option—is now looking more attractive as well. But to make this work, the math has to be in order, which means that front-end crude spreads would have to be wide enough to cover the cost of storing oil in pricey floating facilities.

Late last month, Bloomberg reported that trading giant Glencore had chartered four very large crude carriers (VLCCs) to store oil off Southeast Asia. But there’s still onshore storage capacity, and we’re not quite to the point where the floating option is widespread. Related: There Will Be No OPEC Cut

The U.S. still has 100 million barrels of available storage, and we should see more storage capacity by the end of this year. The Middle East is also slated to add capacity in the coming years, with the UAE specifically planning to expand its capacity to take on another 10 million barrels.

The analytical panic is perhaps premature. We’re not facing ‘’peak storage’’ just yet, but Abu Dhabi is playing it smart and safe.

Still, the UAE estimates the oil glut at 2 million barrels a day and growing, and its own storage expansion plans will benefit from this. After all, it houses the biggest oil storage port on the Persian Gulf—Fujairah Oil Terminal FZC—on the Hormuz Strait.

Fujairah received its first shipment just this month of 1 million barrels, and storage capacity is slated to increase 75 percent this decade.

By Charles Kennedy of Oilprice.com

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