Despite OPEC efforts to curb a glut of supply, U.S. crude inventories surged by 8.2 million barrels last week, pushing oil prices to their lowest levels of 2017.
But analysts say a less visible number is flashing a warning sign: floating storage off Singapore.
"It's not unsurprising to see a build at this time of year, it is seasonal, but to see a build of this size really did surprise the market," said Matt Smith, head of commodity research at ClipperData, which tracks vessel and cargo movements in the crude oil market.
The firm is sounding a warning on the unprecedented floating storage inventories in Singapore, which indicates the market has not yet absorbed the surge in shipments in the last two months of 2016.
"Floating storage off Singapore reached an all-time high in February," Smith told CNBC's "The Rundown."
"We started to see Singapore floating storage dropping off last month from that record high of 60-million barrels, but we saw it rebound last week."
Ahead of the OPEC production cut, producers ramped up production and exports to maximize revenues, with OPEC sending over three- fifths of its production to markets in the Asian region.
February arrivals hit 16.1 million barrels per day. That's 1.1 million barrels more than last year's average and nearly 300,000 barrels higher than the previous record set in February 2016, according to ClipperData.
The region's refineries cannot process that much crude, so the influx lifted Singapore floating storage to 64-million barrels in early February, the highest level on available records. It has fluctuated since then, but remains well above recent averages.
"As long as we see 60-million barrels floating offshore in Singapore, it is just indicating that the market is still oversupplied and is not absorbing all this oil," Smith said.
The Storage Play
The structure of the futures market is making it less compelling to store oil, meaning the owners of the crude sitting in vessels off the coast of Singapore face a conundrum.
In a February research report, analysts at BMI noted that the structural rebalancing of the global crude market was being reflected in the futures curve, which is transitioning from a contango structure to a backwardated one.
"Oil traders will find it harder to make money in a backwardated market compared to one in contango, as the opportunity for 'cash and carry' trades disappears," analysts said.
That trade occurs when traders buy and store crude oil to sell at a later date when prices are higher, locking in profits using futures contracts.
However, in a backwardated market, there is no incentive to store crude, meaning the reversal in the market dynamic should help to draw down bloated inventories and contribute to the global rebalancing.
"Now that the contango has narrowed, there is much less incentive to store oil at sea. That makes Singapore floating storage all the more interesting," said Smith.
A Wall of Supply
The surge in U.S. inventories, a closely watched market indicator, boosted total stockpiles to a fresh record of 528.4 million barrels, according to the Energy Information Agency.
"When combined with the huge speculative long positions in the market, it's not surprising that prices sold off so strongly," ANZ said in a note.
Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures also rose 867,000 barrels, the EIA said.
On the other side of the refining equation, gasoline posted its biggest weekly inventory drawdown since April 2011, with a 6.6 million-barrel drop, owing to strong nationwide demand and reduced refining output on the U.S. east coast.
Analysts in a Reuters poll had forecast a 1.4 million-barrel drop in gasoline stocks.
U.S. crude imports rose last week by 385,000 barrels per day.
Oil prices have rallied since December on expectations that an OPEC supply cut would balance the market, but the recent pullback suggests the market is tightly wound and vulnerable to any headline shocks.
"Before this surplus is worked off, it is too early to declare victory and watch the prices rise. The oil market is global, and getting U.S. inventory under control is not enough, said Smith.
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—Reuters contributed to this report.