Based on the current gasoil price trend in Europe, there are no economic incentives to store fresh cargos onboard ships. This has led to a high number of ships discharging their cargos onshore in the past three months.
This trend is expected to continue through summer as more time-charter ship contracts expire. Ship charterers are not expected to renew these time-charter contracts or execute the options to extend the contracts.
“The number of VLCCs used to store gas oil has dropped to about nine from 14-15 last year,” a shipping source said, adding that ships are discharging the floating storage cargos on a regular basis upon expiration of time-charter contracts.
These ships are then redeployed to deliver crude and dirty products.
Recently, a VLCC, Sahba, came off a time-charter contract with Shell for gasoil storage in the North Sea. It was redeployed to deliver crude to Asia.
The total number of ships, including brand new Very Large Crude Carriers, Suezmax, Aframax and Large-Range clean tankers, used as floating storage soared well over 100 at the peak last year.
These vessels are anchored in the oceans around the world, with the bulk in Europe.
However, the number started to dwindle early this year in line with the weakening contango price trend for gasoil in Europe.
Players that are still holding gasoil in VLCCs include Gunvor, Shell, Trafigura and Vitol.
“On crude, our estimated volume drops to as low as 10-15 million bbl, but some estimates out there are as high as 20 million bbl,” a shipping analyst said.
One VLCC could hold up to 2 million bbl of crude or products.
“I think most of the gas oil is gone, but there are still ample jet and diesel parcels sitting around,” he added.
Based on the ship count, the rough estimate for distillates storage on ships was pegged at 40 million bbl, the analyst said.
This is compared with an estimate of 65.65 million bbl in January and 85.35 million bbl in November 2009.
Many players who have distillates onboard ships had hedged their positions much earlier when the contango was stronger.
Meanwhile, the contango price trend for ICE gasoil weakened significantly in the past three months.
The front-month gasoil spread is in a backwardation, and the May-June gap is holding on to a slight contango of about $1.50/ton.
The forward intermonth price spreads through August were at about $4.50/ton.
In January, the intermonth spreads for gasoil were at about $6/ton, and the gaps were much wider at $10 last summer.