The volume of oil stored on board ships in Asian waters, which has tripled since September to a three-year high, is poised to decline as producers of sanctioned oil slow exports and Chinese refiners ramp up buying, trade sources and analysts said.
A surge of exports from countries subject to Western sanctions led by Iran and Russia, as well as tepid Chinese buying, left a glut of oil looking for buyers in the world's biggest consuming region. The excess supply has weighed on prices and cushioned the near-term impact from the disruption of exports from Venezuela.
A large amount of oil was shipped out in recent months in anticipation of tighter sanctions, said Mukesh Sahdev, CEO of energy consultancy XAnalysts.
"The floating storage buildup has passed its peak, and the declines will lend support to oil prices. But it will be unlikely to revert to previously low levels given the increased oil production globally," he said.
Asian oil floating storage hit 70.9 million barrels on December 18, the highest since June 2022 and up from 21 million barrels at the beginning of September, according to Kpler, a data and analytics provider. Iranian oil accounted for more than half of the stored crude at 38.9 million barrels, the data showed.
Iran's exports topped 1.9 million barrels per day in September and October, the highest since mid-2018, Kpler data showed, falling to 1.8 million bpd for November and 1.1 million bpd so far in December.
Exports from Venezuela have fallen sharply since the US seized a tanker off its coast earlier this month. Venezuelan oil, which accounts for about four per cent of China's imports, can take 60 days to arrive, slowing the impact of any prolonged disruption from US operations in the region.
Russian oil exports declined in October and November, weighed down by Ukrainian attacks on ships and facilities, the International Energy Agency said, sliding to 4.71 million bpd, from 5.01 million bpd in October and 5.16 million bpd in September.
Western sanctions on top Russian producers in October prompted Chinese state companies and Indian refiners to pause buying, leading some cargoes to be redirected to China's coastal Shandong province in hopes of finding buyers among independent refiners.
Among them, the US-sanctioned Ladoga loaded 611,640 barrels of Russian ESPO blend at Kozmino in early November and sailed to waters off Singapore on November 13, and was still looking for buyers on December 23, Kpler and LSEG data showed.
However, Russia's exports have risen recently due to unplanned refinery outages caused by drone attacks as well as ample output.
"Into the end of the year, I could see a slight build-up of floating storage if Russian barrels start accumulating, but in the new year, I expect this to start drawing down with greater independent refiner intake with improved margins and new quotas," said Kpler senior oil analyst Naveen Das.
Independent Chinese refiners known as "teapots" made purchases from bonded storage for fast delivery after receiving eight million barrels of fresh government import quota in late November, enabling more floating storage to discharge, trade sources said.
Meanwhile, more quota for 2026 imports is expected by the end of this year, prompting teapots to order more - especially Russian oil - thanks to cheap prices, they added.
Kpler data showed imports into Shandong accelerating to 3.8 million bpd so far this month, up from 3.5 million bpd in November and 3.1 million bpd in October.
Discounts for Russian ESPO blend widened to more than $7 a barrel to ICE Brent in Chinese ports, from $5 to $6 a barrel early this month and a premium in early October.
Discounts on Iranian light crude held around $8 per barrel for this month, versus about $6 in September.
(Reporting by Siyi Liu in Singapore; Additional reporting by Moscow bureau and Trixie Yap in Singapore; Editing by Tony Munroe and Jamie Freed)
