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Thursday, August 06, 2009

Gasoil Floating Storage Off Singapore Rises On Contango

Thursday, 06 August 2009

About 830,000 metric tons of gasoil is in floating storage off the coast of Singapore, with stockpiles likely to build as the regional contango starts to widen, making East-to-West arbitrage shipments less attractive.  The fleet of tankers on time charter includes two LR-1s, five LR-2s and two Suezmaxes storing a total of 830,000 tons of gasoil, according to a survey of fixtures provided by Europe- and Singapore-based shipbrokers.
With the contango in Asia widening since mid-July and the flood of middle distillates to Europe narrowing ICE gasoil time spreads since end-June, traders have started booking larger, newly built vessels to store gasoil off Singapore at cheaper freight rates.
In addition, a decline in global demand for shipping has led to an excess number of large ships on the market, said a Singapore-based shipbroker.
"Floating storage is a creative solution (for traders) instead of building more storage space."
Large new builds, which typically are destined to carry dirty oil products such as crude oil, often lack approval from major oil companies and can transport clean cargoes on their maiden voyage, shipbrokers say.
A wide contango - a structure where near-term contracts are priced cheaper than those further into the future - offers potential profits from buying gasoil at current prices, storing it on ships and selling it at a future, higher price. Since mid-July, the contango between prompt- and forward-month Asian gasoil swaps has widened to as much as 80 cents a barrel, according to brokers.
"The arbitrage (to Europe) looks less favorable," said a Singapore-based trader. "Storage is less profitable in Europe and more so here in Asia."
Trafigura Group, for example, booked the newly built Suezmax vessel NS Burgas in mid-July to store 140,000 tons of gasoil off Singapore for between 90 and 150 days, according to a Europe-based shipbroker.
Trafigura, one of the most active players involved in floating storage around the world, chartered two LR-2 tankers at the end of July - the newly built NS Asia and NS Antarctic - to each store about 100,000 tons of gasoil off Singapore, according to two Europe-based shipbrokers. The NS Asia is on time charter for between 30 and 120 days, according to one shipbroker.
Trafigura executives weren't immediately available for comment.
Meanwhile, Vitol Holding B.V. booked the newly built Suezmax ship Kamari in early June to store 100,000 tons of Taiwanese gasoil off Singapore, shipbrokers said.
Royal Dutch Shell PLC (RDSB) and Sempra Energy (SRE) also were heard to fix tankers for floating storage off Singapore, shipbrokers said.
Shell's tanker Silvaplana, which has been storing 90,000 tons of gasoil off Singapore since late May, may unload its cargo in Europe and become available for loading in the Port of Rotterdam in early September, according to a Singapore-based shipbroker.
The amount of gasoil stored off Singapore is just one tenth of the between 7 million and 8 million tons of middle distillates stored at sea around the world, according to shipbrokers. About 5 million tons, mostly gasoil, is in floating storage off Europe, with another 2 million tons being stored off Middle Eastern and African shores, according to two Europe-based shipbrokers.

Source: Dow Jones