A 'worrying sign' for oil prices is floating on the Atlantic

oil tankers

(REUTERS/Tim Chong) Good luck finding buyers.

There aren't enough buyers for all the crude oil out there.

It's peak season for oil buying, Morgan Stanley's Adam Longson notes in his weekly commentary on Monday, yet there are still a bunch of tankers full of oil sitting in the Atlantic Basin waiting to be sold.

And when it comes to the future of oil prices, this is "a worrying sign for the fall," Longson writes.

Here's Longson (emphasis added):

If there are this many challenged cargoes in this strong demand environment, we worry about the outlook for physical oil this fall when crude runs and gasoline demand fall seasonally. When combined with risk of new supply from Libya and Iran, a more range bound (if not lower), yet volatile, oil price environment seems increasingly likely in 2H15.

Longson notes that some oil supplies are being bought only after three months of floating in storage. These supplies include North Sea oil and Nigerian crude extracted off the West African coast, he writes.

Furthermore, all this oil is weakening the gap between the prices of different grades of crude oil to the lowest level in years.

Last month, we highlighted a Bloomberg report that oil benchmark charter rates for oil tankers spiked to a seven-year high because producers were falling short of storage space.

And now it's apparent that even the strongest demand is not mopping up inventories.

Oil prices have rebounded from the lows reached earlier this year, following the 50% crash that began about a year ago. The biggest drawback to the solid rally has been the oversupply in the market, implying that the upside could still be capped. On Monday morning, West Texas Intermediate crude oil prices were trading around $60; a year ago, prices were closer to $100.

Last month, OPEC maintained its oil output target at 30 million barrels a day, as expected. And US shale output has continued to surge, though the Energy Information Administration now expects output to slow down from June till early next year.

And so as Morgan Stanley sees it, even the strongest demand is not balancing the market.

Here's a chart showing that the supply glut of 2015 is higher than the five-year average.

Screen Shot 2015 06 22 at 8.16.27 AM

(Morgan Stanley)

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