When the world economy stepped on the brakes last year, there was a rush to store crude oil and petroleum products whose demand was falling, but the rising prices and optimism about demand are causing storage contracts to be dissolved rapidly.
The volume of refined products held in floating storages for more than 10 days at the end of February is 19.2 million barrels, down 77% from their peak of 84 million last May.
OPEC and its allies are keeping a close eye on global inventories, and the rate of decline will be a key factor discussed in Thursday’s meeting output policy.
A year ago, merchants were struggling to find storage capacity, and tanker rates soared as fuel consumption fell. Product tankers’ earnings broke a record of over $ 100,000 a day, versus below $ 10,000 a day, last May.
In Scandinavia, far away salt caves and disused US pipelines and wagons came into service as storage areas.
However, capacity is now becoming reused in Northwest Europe, the Mediterranean, the Middle East and North America. The parties are notifying the termination of the contracts by April-May.
In the United States, lower prices are also offered for the storage of crude oil and products. The relentless price increase in oil futures began in January, worrying investors considering taking storage positions.
The backwardation, where spot prices are higher than for subsequent deliveries, encourages traders to reduce the oil supply and sell it immediately.
Six-month diesel margin in Europe reached $ 8 per ton on February 19, its biggest payback in 13 months.
The difference had dropped to minus $ 92 per tonne last April, when the world’s population was tightly locked up.
Storage capacity is expected to be available in the second quarter, especially in Scandinavia.
The six-month US diesel futures spread reached 4.35 cents per gallon on February 19, the highest level since January 2020. It was minus 3.2 cents at the beginning of last March.
A comparison of diesel futures on the New York Mercantile Exchange is also in backwardation. For April delivery, diesel was traded about 0.5 cents more per gallon than in May. A year ago, it was in contango traded about 0.2 cents per gallon lower than the May contract.
U.S. distillate stocks fell to 152.7 million barrels in the week of February 19, the lowest since the end of 2020, according to Energy Information Administration data.
SITUATION IN ASIA AND THE MIDDLE EAST
With Singapore middle distillate stocks rising to a 12-week high this week, a tighter market is expected in the coming months as demand gradually increases as regional refineries enter the spring maintenance season and COVID-19 restrictions ease.
Less incentives for storage and certainly a reduction in diesel storage are expected.
The global floating clean product warehouse fell 2.7 million barrels a week to February 22, and most of this decline is coming from West Africa and the Singapore Strait.
In Singapore, the front month difference for the benchmark gasoline rating has declined since the beginning of February, causing traders to withdraw stocks from warehouses.
Brokers say storage in the Middle East tends to deplete at a slower pace.
With nearly 100 million barrels of crude oil and product storage capacity, the Caribbean is America’s largest oil storage center overseas. Tank farm owners and operators are said to be struggling to secure storage contract renewals in the Caribbean.
