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Oil glut leaves 50m barrels in supertankers

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By Carola Hoyos in Paris and Javier Blas in London

Published: December 16 2008 02:00 | Last updated: December 16 2008 02:00

Oil companies and traders are storing at least 50m barrels of oil in supertankers – the equivalent of France’s oil imports for a month – in a clear sign of supply outstripping demand as the global economy slows.

The surge in floating storage, the biggest since late 2001, is likely to push the Opec oil cartel, which meets tomorrow in Oran, Algeria, to make a deeper production cut to reduce inventories. Storing oil in tankers is unusual as it is significantly more expensive than inland.

“Stocks are very high,” Abdullah al-Badri, Opec’s secretary general, said yesterday. “We have to act. We see a very size-able reduction [in production].”

Chakib Khelil, Opec president, agreed: “Everybody is supporting a cut.”

Oil prices yesterday rose briefly above $50 a barrel, recovering from a four-year low of $40.50 set this month. Oil later traded $1.30 down at $44.95 barrel on concerns Opec cuts will not stop further inventory building.

Several Opec officials have suggested a 2m barrels-a-day cut, the biggest in recent history, and were also hoping to persuade Russia – the world’s largest oil producer outside the cartel – to make a reduction. But with Russia’s oil output already declining because of a lack of investment, any commitment is likely to be seen as a political gesture rather than an actual reduction.

Whatever the size of Opec’s cut, the floating storage surge is a clear sign the cartel is losing its battle to cut supplies more quickly than demand falls.

Jens Martin Jensens, managing director at Bermuda-based Frontline, the world’s largest operator of supertankers, told the Financial Times that as many as 25 supertankers – each holding about 2m barrels – were being used as floating storage. Other traders suggested a similar number, pointing to companies such as BP and Royal Dutch Shell and traders such as Vitol and Koch as the holders of oil.

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