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April 2, 2020 12:15 PM, EDT

Oil Tanks at Vital Africa Hub Almost Full as Crude Floods Market

An oil storage tank during construction in Saldanha Bay, South Africa, in 2019.An oil storage tank during construction in Saldanha Bay, South Africa, in 2019. (Waldo Swiegers/Bloomberg News)

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Oil tanks at one of the world’s largest storage hubs on Africa’s southern tip already are almost full, limiting traders’ options as a historic flood of crude hits the market.

The 45 million-barrel Saldanha Bay crude oil storage terminal, the largest in the Southern hemisphere, has been a vital outlet for surplus crude in past slumps, such as the Great Recession of 2008-09. This time, as the combination of the coronavirus pandemic and Saudi Arabia’s price war with Russia creates a record-breaking oversupply, its role may be more short-lived.

The site in South Africa is nearly at capacity, three people familiar with its operations said. There might be room in a couple of tanks holding specific crude grades, but it is full otherwise, one person said.

A spokesman for South Africa’s Central Energy Fund, which manages the country’s energy assets, couldn’t immediately respond to a request for comment.

Saudi Arabia is only a couple of days into a record supply surge above 12 million barrels a day, but the oil market already has been contending with a vast surplus for weeks. International lockdowns aimed at slowing the spread of the coronavirus are emptying roads, shutting businesses and factories and keeping billions of people at home.

Oil has slumped 60% this year as about a quarter of global demand was wiped out. The market structure is deep into contango — when future prices are higher than near-term contracts — making it profitable to store the commodity for any trader with access to tanks.

The availability of storage capacity elsewhere in the world mirrors the picture at Saldanha, one of the people said. Multiple analysts have predicted that, based on current supply, demand and inventory levels, the world is just weeks from running out of places to store the glut.

Saldanha’s six tanks — completed in the 1980s during the apartheid era to ensure oil supplies for the then politically isolated country — generally are leased out to trading companies. A joint venture of Hamburg, Germany-based Oiltanking GmbH and local company MOGS Oil & Gas Services, has been building more than 13 million barrels of additional storage with smaller tanks that allow more flexible blending options.

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