The company has booked five tankers, with a potential to hold 450,000 metric tons of jet fuel in August, at charter rates ranging between $17,000 and $20,000 a day, the survey of shipping fixtures shows. Ship brokers based in Asia say the ships are likely to be loading in the Persian Gulf and Northwest Europe.
The current time spreads or contango–where near-term product prices are cheaper than deferred prices–on the physical jet fuel market are keeping floating storage attractive.
Over the last two years, companies have used storage to take advantage of the contango. If storage costs are low enough, the price structure allows traders to make a profit by buying crude or products in the spot market, then selling them at a pre-agreed price in the future.
The current time spread seems to suit Vitol, despite the fact that most other market participants would need a wider contango to make floating storage economics work, participants said.
The front-month time spreads on the physical jet fuel cargo market is between $5-$6/ton, a jet fuel broker based in the U.K. said, noting that while the price structure makes the prospect of floating storage attractive, most companies would need a contango of $7-$8/ton to make offshore storage workable, unless they can get lower charter rates.
Vitol’s charter rate “equates to approximately $6.6/ton a month for 30 day storage on an Long Range 1 vessel…that’s not bad, considering that usually $8/ton is what people try to aim for,” he said.
ICAP Shipping in London estimates 40.62 million barrels of clean oil products are being stored offshore worldwide as of Aug. 12, with 79% of the volumes located in Northwest Europe and West Africa. The figure is up from 35.3 million barrels calculated by ICAP July 14.
West Africa is hosting most of the gasoil being held on tankers, while in Northwest Europe there have been growing levels of jet fuel held offshore. ICAP said floating jet storage in the region more than doubled to 12.9 million barrels in August compared with 4.7 million barrels in July.
Vitol’s recent tanker bookings with storage options:
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CHARTERER VOLUME VESSEL RATE
(000 TONS) (Daily)
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Vitol 90 Chrysanthemum $18,750
Vitol N/A Dynacom TBN $17,000-$17,500
Vitol 90 Four Sky $20,000
Vitol 90 Northern Spirit $20,000
Vitol 90 Pacific Spirit $20,000
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