Why the world needs more oil storage

The oil 'contango' - an imbalance between the current and future price of oil - means the world is running out of storage facilities as oil is stockpiled. Eoin Gleeson examines the sector and picks one stock to profit from the phenomenon.

Along a seven-mile stretch of coastline in the west Indian state of Gujarat sits an armada of beached cargo ships in various states of disrepair. With global trade in retreat, the local town of Alang, which harbours the world's largest ship-breaking business, has been inundated in recent months and much of the town sets to work each day with blowtorches and hacksaws, reducing the ten-thousand-tonne vessels to scrap.

But while these ships are being condemned, in the port of Rotterdam they are crying out for tankers. It seems that one shipping trade is holding up even as global demand collapses: the trade in crude oil. The problem is that with the giant fuel storage tanks in Rotterdam now full, there has been a surge in demand for long-range vessels to sit offshore, full of oil. Across the world, record numbers of ocean-going tankers are being hired to store jet-fuel and gas oil as shore tanks fill up, reports Bloomberg's Alaric Nightingale. Few industries face such a large backlog as these tank storage firms do today.

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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.