As storage terminals, and the rest of the world, grapple with the fallout from the blockade on the Strait of Hormuz, The Tank Tiger keeps us focused on the bright side
Geopolitical volatility in the Middle East – specifically surrounding the Strait of Hormuz – has sent shockwaves through the commodities and security markets. While the midstream sector is feeling the heat, the impact on storage economics involves a few counterintuitive nuances. Under normal market conditions, a price spike makes storing oil unattractive. Think of it like a Costco run: you only stock up on paper towels when they are on sale to save money later. In oil markets, storing expensive barrels today only to sell them later at a lower price – while paying storage fees in the meantime – is a losing proposition.
Since early 2021, the market has lived in almost constant backwardation (where current prices exceed future prices). This was initially driven by a rapid post-pandemic recovery and underinvestment, then cemented by the Russia Ukraine war and OPEC+ production cuts. Ironically, while the recent closure of the Strait of Hormuz has propelled the market into even steeper backwardation, it hasn’t necessarily ‘ruined’ the storage business. Why? Because the incentive for long-term storage was already virtually non-existent before this latest conflict began. The economic punchline is that storage rates, even with the market volatility, have remained quite stable.
However, where one door closes, another opens. This volatility has ‘upset the apple cart’ creating massive pricing discrepancies between global regions. This has shifted the economic incentive from storing oil to moving it. To capitalise on these ‘A to B’ arbitrage opportunities, traders need vessels, and to load those vessels, they need export terminals and staging tankage. So the focus has been on these premium locations that can support this activity. As a derivative of this, we have seen more demand for terminals that have rail access, so that railcars can get loaded, with the destination point being an export terminal with deepwater waterborne access.
At The Tank Tiger, our data from this year shows a significant surge in demand for this specific type of infrastructure. By backtesting this data, we’ve identified that storage demand serves as a high-fidelity signal for inventory levels and subsequent price movements. We are currently sharing these insights with a range of hedge funds, integrated oil companies, and trading houses to help them navigate this fractured landscape.
Ernie Barsamian is CEO of The Tank Tiger, a clearinghouse and a single point of contact for parties who desire terminal tank services or utilisation of midstream assets, bringing them together with the companies who own these assets. It is a free service for those looking for tank storage. Contact Ernie on
ebarsamian@thetanktiger.com
