Traders charter long-range vessels to temporarily store gasoil
Traders are temporarily storing gasoil on vessels in the waters off Singapore as they anticipate demand for the fuel to go up in the coming months, industry sources said on Thursday.
About six to eight long-range (LR) Aframax-sized vessels which can carry up to 115,000 tonnes, or about 850,000 barrels, each of gasoil are storing the industrial and power generation fuel offshore for about one to three months, multiple trading and shipping sources said.
Traders likely took advantage of a wide contango, where prices for cargoes loading in the prompt month are lower than those loading in forward months, and cheaper freight rates, the sources added.
“Yes, there is a contango in gasoil and several units have been taken for storage,” a European shipbroker said.
The price of a prompt Singapore gasoil swap dropped to a discount of 63 cents a barrel to the second-month swap on Nov. 29, the widest in nine months, before narrowing slightly in December, Reuters data showed.
Charterers of the vessels include Glencore’s shipping arm ST Shipping, oil major BP and trader Vitol, the sources said, though this could not be confirmed with the relevant companies.
ST Shipping is paying about $17,250 per day for a 30- to 90-day short-term charter, said Ashok Sharma, managing director of shipbroker BRS Baxi Far East in Singapore.
The growing interest in vessels for storage helped push Aframax spot charter rates to $26,000 per day in early December, the highest level since March, according to data on the Reuters Eikon terminal.
Gasoil demand typically rises during winter for heating in Europe, opening up arbitrage opportunities to ship the cargoes from Asia, traders said.
“Some of the fixtures have options to ship the cargoes west, so they can always take it off storage and bring it west once market structure changes,” a Singapore-based shipping source said.
A recent pick up in trading activity in the Singapore gasoil market could also be boosting interest to store the fuel in ships, traders added.
The volume of gasoil cash deals recorded during price reporting agency Platts’ pricing process rose to a record of 19.055 million barrels in November. The company’s prices are used as a benchmark for a majority of oil contracts in Asia.
In December, Glencore has bought over 3 million barrels of 500 parts-per-million sulfur gasoil for December loading from Singapore, according to Reuters calculation based on trade data. Vitol has snapped up about 4 million barrels and BP about 4.5 million barrels.
Source: Reuters (Reporting by Jessica Jaganathan; Editing by Christian Schmollinger)