Oil prices are exhibiting unusual resilience despite a global supply surplus, a disconnect fueled by a growing accumulation of sanctioned crude oil held offshore. This phenomenon is preventing the expected downward pressure on prices, according to analysis from Goldman Sachs.
The investment bank estimates a global oil market surplus of approximately 1.5 million barrels per day in . However, rather than a corresponding decline in prices, crude oil has seen a roughly 15% increase in value this year, after three consecutive years of falling prices. This is largely attributed to the location of the excess supply.
“A large part of this surplus has not reached pricing hubs; it is stuck at sea,” Goldman Sachs analysts wrote in a recent note. Meanwhile, onshore commercial inventories in key pricing centers, such as the US Gulf Coast and Northwest Europe, have remained relatively stable.
Currently, Russia, Iran, and Venezuela collectively hold an estimated 375 million barrels of sanctioned oil on tankers, a significant increase of 130 million barrels over the past twelve months. This represents roughly one-third of the total increase in visible global oil stocks during that period. The build-up is a result of both increased supply and weakening demand for these sanctioned barrels, particularly towards the end of .
The decline in demand stems from a combination of geopolitical factors. New sanctions and diplomatic risks have increased the indirect costs associated with purchasing sanctioned oil. Simultaneously, high refining margins have favored the processing of non-discounted crude. Independent refineries in China exhausted their import quotas at the end of , reducing their purchases of Russian and Iranian oil.
Russia’s floating oil volumes reached 160 million barrels following a reduction in Indian imports, although the flow has stabilized with renewed Chinese purchases. Iran faces a similar situation, also holding approximately 160 million barrels at sea. Venezuela, however, is experiencing a different trend, with its floating stocks decreasing due to increased authorized imports exceeding exports by as much as 0.4 million barrels per day.
Looking ahead to , Goldman Sachs anticipates that the accumulation of oil at sea will diminish, accounting for 21% of additional global stocks compared to 47% in . Nevertheless, the bank cautions that significant risks remain. Geopolitical pressures, shifts in the policies of China and India, and potential negotiations involving Russia and Iran could substantially alter these flows.
The report also quantifies the potential impact on prices. Holding 1 million barrels per day of sanctioned oil at sea for a year could increase Brent crude prices by up to $8. Conversely, a reduction of 100 million barrels in maritime stocks, driven by potential sanctions relief, could lower prices by $3 to $4.
The situation has created what analysts describe as an “artificial scarcity” on land, supporting prices that would typically fall in the face of oversupply. The evolution of geopolitical tensions will be crucial in determining whether this oil continues to drift without a destination.
On Wednesday, oil prices closed over 4% higher as traders factored in the risk of supply disruptions amid tensions between the US and Iran and uncertainty surrounding the war in Ukraine, following unsuccessful talks in Geneva. As of early Thursday, US West Texas Intermediate crude oil futures were trading around $65.30 per barrel, while international benchmark Brent crude was around $70.50 per barrel.
