The volume of refined fuel stored on ships floating at sea has jumped nearly 71 per cent since early April, industry sources said on Thursday.
About 41 million barrels of gas oil and jet fuel were being stored in tankers mostly off Europe’s coast, up from around 24 million barrels in April, sources said.
Crude has rallied to a seventh-month high on optimism the economy would soon improve, despite the continued build in storage.
The demand for ships to store fuel has boosted freight rates for the Long Range 2 tankers mostly being used, shipbrokers said. The tankers can hold between 600,000 and 1 million barrels.
“Storage continues to be an option for traders and we see bookings running through at least the end of August, with several of them adding options to extend storage into September,” a shipbroker said. U.S. investment bank JPMorgan Chase & Co <JPM.N> has hired a crude supertanker to store gas oil off Malta’s coast, a unusal sign traders were looking to take advantage of the weaker crude oil freight rates to store distillates. The ship would have to be cleaned to hold the refined fuel.
Crude rallied to over $69 a barrel this week, the highest in seven months, as optimism about the global economy outweighed concern about poor fundamentals in oil markets.
Crude oil in floating storage fell in late May to around 90 million barrels from around 100 million barrels as prompt crude prices rose and narrowed the discount to prices further out. [ID:nLS679181] That discount was key to traders storing oil at sea to make profits by selling it later.
But products storage has risen while crude storage has fallen.
Despite the oil price rally and more positive sentiment about demand, distillates remain weak, said Evan Lim, an executive director from leading distillates trader and Singapore-based Hin Leong. [nSP381080]
The distillates market, which includes gas oil and jet fuel, has improved recently after underperforming for most of the year.
The gas oil margin for July has risen around $2 to $8 at Thursday’s Asian close. Margins for the fuel used for power generation and transportation has been mired at lows of $5-$6 a barrel for more than two weeks, hitting a six-year low of $5.45 at the end of May.
Freight rates for LR2 tankers plying the benchmark route between the Middle East and Asia have risen about 29 per cent since mid-May to Worldscale 70 points, shipbrokers said.
“We have seen freight rates for clean tankers pick up the past month, because more and more LR2 tankers are being booked for storage,” said an Asian based shipbroker. “Because of this we are seeing a ripple effect even in the medium-range (MR) tankers.”
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