At least two players — Japan’s Marubeni and South Korea’s SK Energy have cut storage capacities by up to half over the past month, traders said. A third, U.S.-based Westport Petroleum has subleased their storage on a short-term basis, a source familiar with the deal said. At least two other trading firms are looking to do so or are prepared to return the tanks to the storage owners, traders added. However, the reduction in capacity is not expected to have an immediate impact on the market as the total capacity will stay well above demand levels with new players taking new storage space, traders said. Asia’s oil trading hub Singapore is facing an oversupply of onshore storage space for residue fuels, which more than doubled since 2007 but is not being fully utilised by occupants, leading to increased trading costs, traders said. Even then, the increased storage capacity is attracting higher imports of fuel oil from the West, driving up supplies in the region and exceeding steady demand, traders said. “The market has become increasingly congested with players and cargoes,” a Singapore-based Western trader said. “Everyone is undercutting everyone else because we all have more oil to sell than there is demand.” The trader added that most of the medium-sized trading firms holding 100,000-200,000 tonnes of storage capacity, do not have the economies of scale to compete with the bigger players such as Vitol, Glencore, BP and PetroChina, which have at least 500,000 tonnes of capacity each. “The only smart thing to do is to cut costs and that’s by giving up some tanks,” he added. Traders said the total fuel oil storage capacity, including onshore and floating tanks in the Singapore-Malaysia region, stands at 9 million to 10 million tonnes, versus less than 5 million tonnes of demand, mainly from the Singapore marine fuels market. “If we cannot find someone to lease the tanks from us, then we would return at least 50 percent of our capacity to the landlord,” said one of the two players, who holds about 200,000 tonnes of capacity. “There’s no point in working so hard just to pay for the tanks,” he said, adding that the operating environment will stay difficult for the rest of the year, especially with some new players coming in or wanting to expand their volumes. “This would eating into everyone’s margins,” he said. HIGHER TRADING COSTS Marubeni will give up its lease on 100,000-150,000 cubic metres (cu m) of fuel oil storage at Chevron’s Penjuru terminal in western Singapore by the end of the month. It has instead sub-leased a lower capacity of 80,000 cu m from Westport at Royal Vopak Terminals until May. Westport which has a total capacity of 240,000 cu m, is expected to retake the tanks once Marubeni’s deal expires. It is not immediately clear if Marubeni will lease any tanks after that. SK Energy, which has about 200,000-250,000 cu m of capacity at Horizon, has also sub-leased 80,000-100,000 tonnes to Russia’s LUKOIL and Cargill International. Traders said monthly throughput levels on landed storage — the frequency by which traders move volumes from the tanks and impact trading margins — have fallen to 0.6-0.8 turns per month from 1.0-1.5 times a month before 2007, when storage capacity started to ballon on a flurry of new terminals coming onstream. The lower throughput levels mean higher trading costs per tonne of fuel oils. Reflecting the market’s cautious mood, traders said it was unclear who will take over Marubeni’s vacated capacity at the 450,000 cu m Penjuru terminal. France’s Total has 100,000-150,000 cu m of capacity at the terminal since fourth-quarter last year, which it took over from tanks vacated by Brazil’s Petrobras, which in turn had moved into Chemoil’s Helios Terminal earlier last year. Total also has a 100,000-120,000 tonne a month processing deal with Singapore’s Kuo Oil at the Tankstore terminal. Despite the caution in the market, new players such as Noble Group, China’s Southernpec and Coastal Petroleum have each taken up four floating storage facilities, all converted Very Large Crude Carriers (VLCCs) of 270,000-tonne capacity. Noble’s facility, the Hercules is set to be operational by end-March. Southernpec, a unit of Sinopec has taken up two VLCCs — the Southernpec 3 and the Southernpec 5 — in less than a year since it started business, and Coastal Petroleum has leased 50,000 tonnes on board the Taurus. In total, 17 floating storages are anchored off Singapore and neighbouring Malaysia with capacity of 4.0-4.5 million tonnes, while another 5.5 million cu m sit on landed storage in the city-state.