FX.co ★ Why oil market oversupplied?

Since the beginning of the week, Brent crude price has declined by almost 6%. On Wednesday, Brent traded at $53.7 a barrel. So why does oil market continue to fall?
It is no secret that the money factor plays the crucial role. So if the bull speculation sparks no interest anymore, investors can come up with any excuse for a price fall.
However, the information about aggressive sell-off of oil reserves from floating storages seems to be true. This is primarily due to the speculative component.
When futures prices of oil are higher than the spot prices, large traders lease out tankers and then fill them up with oil. They sell futures and deliver oil from the tankers.
The bottom line is that floating storage is cheaper than land storage. The profit potential is pretty compelling. The scheme could fail only in case of big lease costs or lower price differences between contracts.
For instance, the deference between oil futures with delivery in one year and the spot price at the end of 2016 was $4. Now it is less than $2. It means that the difference does not defray traders’ storage costs.
According to experts, there will be even more oil supplies from floating storages in the market.