OPEC is considering whether or not to raise its oil production to prevent the global market from becoming too squeezed, but there is one part of the world that is telling a very different story about the balance between supply and demand.
The boom in U.S. shale shipments has outstripped OPEC's production cuts and pushed millions of barrels into European waters, where more crude is being stored on ships than at any time in the last 18 months.
And it's not just the volume of oil aboard ships. At a monthly average in May of 12.9 million barrels, or 26 percent of total global floating storage, Europe had more oil in floating storage than the Asia-Pacific region at 9.7 million, according to data from oil analytics firm Vortexa.
In March-April, Europe's share was 10 percent versus 40 percent in Asia-Pacific.
Vortexa estimates the monthly average share of oil in floating storage located in European – including the Mediterranean – in May outstripped volumes floating in Asia-Pacific for the first time since at least the beginning of 2015.
Buyers in China, India and Indonesia have taken growing amounts of U.S. crude rather than their usual cargoes of Nigerian, Angolan or Middle East fare, some of which have unusually ended up in Europe.
Consultants Kpler estimate there are some 17 million barrels of oil on ships in northwest Europe, the most since at least early 2016 and Nigerian in particular is extremely unusual.
"It's quite rare to have Nigerian crude floating in the North Sea. It's only happened in a total of two weeks in 2018 and 4 weeks in 2017," Kpler economic analyst Reid I'Anson said.
U.S. exports are running at around 2.5 million barrels a day, having more than doubled since January, despite a lack of pipeline and port capacity to get crude to the international markets that has forced down differentials for domestic grades.
This has inflated the premium that Brent-linked crudes command over their U.S. rivals, which has yawned out to nearly $11 a barrel this month, from closer to $5 a month ago, as well as boosting the cost versus Middle East grades.
The North Sea tends to see builds in floating storage between April and June most years, as refineries gradually exit maintenance mode.
"BUYER OF LAST RESORT"
Forties, a light sour crude and the largest North Sea grade, is usually the first to end up unsold on tankers, but this time around, most of this floating oil is from elsewhere, as sellers seek shelter in Europe, which many traders consider "the buyer of last resort."
"It is possible that U.S. crude is displacing some lighter end North Sea (and non-North Sea) grades that have traditionally managed to find a home in Northern European refineries," I'Anson said.
I'Anson said this was particularly true of Ekofisk, a light sweet grade, which makes up almost a fifth of all the oil stored currently on ships in the region, according to Reuters data.
Traders and investors have become less optimistic about the balance between supply and demand generally over the coming few months, which has knocked the benchmark Brent crude futures price to its lowest in around a month, around $76 a barrel.
The physical market, where actual barrels of oil change hands, shows traders are no longer willing to fork out for prompt shipments of crude, given the abundance of unsold oil.
This structure, where prompt prices are lower than those for future delivery, known as contango, tends to encourage holders of physical barrels of oil to store their crude and sell it later to secure a higher price.
Between the contango and the Brent/WTI spread, the owners of these extra overseas barrels are taking a bet that they will secure better prices in northern Europe than elsewhere.
"At the moment oil bulls are feeling discomfort on several fronts," said SEB chief commodities analyst Bjarne Schieldrop.
"Weekly inventories (US, EU, Singapore and floating storage) have increased lately and are up 25 million barrels year to date. The dated Brent crude oil price has traded at a discount to the 1mth contract for 24 trading days in a row reflecting crude oil spot market weakness."
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