Supergiant oil tankers are floating outside the world’s largest shipping ports with enough oil to meet the world’s daily demand twice over. Only months ago these vessels criss-crossed the globe laden with up to 2 million barrels. Today they stand motionless and bloated with crude that no one will buy.

The record volume of stranded crude cargo illustrates a deepening crisis in the global oil industry. Demand for oil has fallen so severely, and at such pace, that there is little space left on land to store the crude made redundant by the coronavirus crisis. At least 160 million barrels are now stored at sea, outside global shipping ports from Singapore to Suffolk and along the US gulf coast as oil traders brace for storage facilities to reach capacity imminently.

Market forecasts suggest that the world’s conventional oil storage – which can hold about 3.4 billion barrels – will be filled to its limits within the next month. In the meantime, oil traders are turning to alternative storage options: supergiant tankers, rail freight carriages and even underground salt caverns have become sought-after havens to stash millions of barrels of surplus crude.

“It feels like high noon on oil markets,” says Norbert Rücker, an analyst at private banking group Julius Baer. “Storage close to capacity limits, rapidly filling up, creates a blistering tension filled with fear about an overflowing oil market.”

The market fear has driven global oil prices to lows not seen since 1999. The price of crude for delivery next month in the US oil market, known as the West Texas Intermediate (WTI), turned negative for the first time in history last week. Oil producers without access to local storage facilities were forced to pay buyers to take their supplies as market prices fell to almost -$40 a barrel.

Chris Midgley, head of analytics at data provider S&P Global Platts, believes the US’s largest oil storage facilities at Cushing in Oklahoma are already two-thirds full and the remaining space has been bought by oil traders and brokers.

“It’s probably the same case for storage around the world,” he says. “That’s where we come to floating storage. For many in the oil industry, the only option is to get a ship and put oil in it for one to two months. If you can’t find a buyer or a ship, you’re left with the last option to shut in [suspend] production.”

In the US and Canada, where the cost of transporting oil from landlocked oilfields is higher than in regions with offshore rigs, oil producers have taken the difficult decision to shutter their wells.

There are heavy costs involved in shutting down production, and there is a chance that a forced shutdown could cause irreversible damage to oil wells, which may not produce the same volumes once they are restarted. The risk of a sudden shutdown must be weighed against the risk of continuing to pump crude.

Against this backdrop, the oil market may have already passed a tipping point, according to analysts.

The coming weeks are expected to bring the most severe overhang of crude ever seen. Rystad Energy, a Norwegian consultancy, estimates that oil demand will fall 26 million barrels a day below the average demand recorded last year.

“We believe the market got the final wake-up call about the urgency of the soon-to-be-full storage situation globally this week,” says Bjørnar Tonhaugen, the head of oil markets at Rystad.

The consultancy estimates that the world’s unwanted crude oil will reach tank tops some time in May, unless oil wells begin to close on a scale never before seen in the global industry.

“As we see it, a wave of shut-ins is inevitable for the oil market to come closer to a balance. Not having enough storage is not only a theoretical problem but a practical one. Unless more production shuts down, the extracted oil will literally have nowhere else to be stored,” says Tonhaugen.

“This is not something the industry has ever seen or ever been prepared for; maybe that is why we see a slow reaction. A major shock is brewing for producers and unless there is a firmer response from their side to voluntarily slash output, we will soon be discussing the greatest energy crisis in history.”