July 16, 2011 [Opis] - After one month, a floating 1 million bbl low sulfur vacuum gas oil cargo remains stored onboard a Suezmax tanker off the Gulf Coast, waiting for higher spot prices, industry sources told OPIS on Friday.
The storage play may continue for a while more as the Gulf Coast LSVGO market continues to look for a clear direction. The market is still trying to digest an oversupply.
In mid-June, a combination of cheap freight rates and a lackluster Gulf Coast vacuum gasoil market led to a rare move by Glencore to store LSVGO onboard a Suezmax tanker, Hvratska, which was booked for 30-45 days at $16,000/day. The freight rate in June was substantially cheaper than rates for a similar ship at over $20,000/day in May. The demurrage cost for a Suezmax tanker is $25,000/day versus close to $30,000/day a month ago.
Glencore transferred VGO cargoes from three smaller ships to the large Suezmax tanker in a ship-to-ship transfer at sea.
The Suezmax tanker market is depressed by ample supply and light inquiries. In the Gulf Coast VGO market, domestic supply continues to overwhelmed demand, keeping imports out for the time being. However, the market outlook remains cautiously bullish in the near term as India’s Reliance emerges as a surprise buyer for LSVGO for delivery to Jamnagar. Reliance is to shut two VGO hydrotreaters for maintenance in September, and it is now looking for spot LSVGO cargoes in Europe. The second buying option could be the U.S. if Europe is not able to satisfy the Indian demand.
