The price advantage for traders buying oil to store it on crude carriers for a month instead of delivering it immediately has shrunk 90% since May, causing a surge in oil imports in the Gulf of Mexico, Bloomberg data finds.
Floating storage in the Gulf dropped 24% in the week ended 23 July.
Profits in storing crude in vessels dwindled and pushed traders to cargoes forcing crude futures lower.
Stockpiles unexpectedly rose 7.31 million barrels, or 2.1%, to 360.8 million in the week ended 23 July, confusing analysts who predicted inventories would fall 1.73 million barrels, or 0.5%, to their lowest level in four months.
A surge in imports to Gulf states contributed to the glut, Energy Department figures showed 28 July.
US imports rose 1.18 million barrels, or 12%, to 11.2 million, the highest level since the week ended 25 August, 2006. The bulk of the imports, 65%, went into states along the Gulf of Mexico, compared with 55% of imports the week before. Oil stored at sea in the region fell 13.9 million barrels to 29.6 million barrels, the week ended 23 July.
The amount of crude held on very large crude carriers (VLCCs) hired for long-term storage has fallen 73% this year to 11 million barrels as of 29 July, according ICAP Shipping International Ltd.
The Otina, a tanker with a capacity of about 2.4 million barrels chartered by Shell, unloaded in the Gulf this week.
The contango has come out of the market, Andy Lipow, president of Lipow Oil Associates, says. So it doesnt make any economic sense to hold barrels in inventory, especially on the water where storage is currently higher than it would be on land.