More oil is sitting on tankers parked off the coast of Southern California than ever before, with the US Coast Guard identifying 27 vessels waiting with nowhere to offload their oil on Thursday night.

The pileup comes as oil has hit chronic oversupply due to the coronavirus pandemic causing a “historic shock” to markets. While demand for petroleum products has nosedived due to the effects of lockdown policies, output increased earlier this year, triggering a shortage of storage space for oil.

As a result, tankers have been forced to sit off coastlines and keep hold of their unneeded crude. The oil off California alone enough to satisfy 20 percent of the world’s consumption, according to Bloomberg.

“Due to the unique nature of this situation, the Coast Guard is constantly evaluating and adapting our procedures to ensure the safety of the vessels at anchor and the protection of the surrounding environment,” said the Coast Guard’s Cmdr. Marshall Newberry, from Coast Guard Sector Los Angeles/Long Beach.

Last week contracts for US crude hit a record low of -$40.32, meaning producers were paying buyers to take oil off their hands as fears increased that storage capacity will run out in the next few weeks.

“Our analysis shows [that] we will essentially run out of storage capacity between early-May and end-of-May under our current demand loss estimates,” said Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen in a note Friday.

Supertanker freight rates have soared over April as industry participants scramble to find space for spare oil. In early-April prices reached around $235,000 per day on the VLCC (very large crude carrier) market for pushing freight along the Middle East-China route.

Rates for VLCC floating storage recently traded at around $120,000-$130,000 per day for a six-month period, compared to around $85,000 per day for six-months prior to the historic crash in US crude prices.

Global oil supplies could shrink by as much as 6 percent by 2030, according to data from Rystad, as companies continue to delay investments due to market oversupply and plunging prices.

“As we see it, a wave of shut-ins is inevitable for the oil market to come closer to a balance. Not having enough storage is not only a theoretical problem but a practical one too. Unless more production shuts down, the extracted oil will literally have nowhere else to be stored,” Tonhaugen added.

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Last Update: Wednesday, 20 May 2020 KSA 09:57 - GMT 06:57