However, the prevailing oil market fundamentals have also contributed to the lack of demand for gasoline storage at U.S. oil products. Diesel players are securing tanks in case a steep contango trend develops later. This is despite the current storage economics and a weak price contango for diesel.

Unlike the overall weakening demand for crude storage, the U.S. oil products storage outlook is mixed.

Resilient gasoline demand and steep prompt price backwardation offer little incentives to U.S. oil players and refiners to store gasoline in storage tanks. Distillates tanks continue to see robust demand even though the intermonth contango price spread for diesel is narrower than earlier this year.

The backwardated gasoline market offers no incentives for oil companies to keep the product in tank amid a comparatively weaker forward price than prompt. So far in summer, the August-September RBOB backwardation is at about plus 5cts/gal, compared with about plus 3cts/gal a year ago.

Accordingly, gasoline tank rates are seen flat to slightly weaker than earlier this year, and rates for distillates tanks, especially in New York Harbor and Gulf Coast have been buoyant.

Gasoline, along with crude, were the flavors of the month earlier this year when both gasoline and crude markets reflected a steep price contango, encouraging storage plays.

However, the market dynamics changed for gasoline, which saw a resilient seasonal gasoline demand increase during spring and so far in summer. This bullish prompt factor flipped the gasoline price contango into a relatively steeper backwardation compared with last summer.

As gasoline storage economics remain unfavorable, only integrated oil companies, system players and blenders are now holding onto tanks for gasoline storage.

Also, not all gasoline tanks are created equal. Some tanks in the New York Harbor that are designated as NYMEX delivery points and those with easy accessibility and better locations are harder to come by than those tanks that are non-NYMEX delivery.

On the West Coast, storage tank rates have come down from the peaks (that were close to $1.10/bbl) from three to five years ago. Shippers note that there is slightly less tank availability at terminals along the Kinder Morgan South Line (the line that moves barrels toward San Diego).

This year saw California’s “Cap and Trade” program potentially impact pipeline shipments as some of the smaller shippers took a step back to see how the program would impact products at the rack. As a result, space is not considered especially tight. Now that the smaller shippers see that cap and trade costs are essentially a pass through, some believe they will start to come back.

Additionally, an increase in imports earlier this year had at times picked up the slack in tank availability. Sources note, though, that overall rates have become more competitive due to some expansions.

The combination of a gasoline backwardation and distillates contango should open up opportunities for a limited switch for gasoline tanks to distillates.

Some swing products tanks, not all, have the ability to switch between gasoline and distillates.

The diesel storage demand outlook is comparatively stronger than gasoline.

Diesel inventory is expected to continue to build after a sharp drawdown earlier this year. Also, some refinery capacity has come back onstream, and healthy refining margins are supporting high refinery utilization rates across the country from coast to coast.

The intermonth distillates price contango at less than 2cts/gal is not especially robust, but demand for tanks remains solid as some players, who are afraid of losing their tank space, are renewing their term lease contracts in case a stronger steep contango price trend emerges amid high refinery utilization rates.

With the overall oil storage economics remaining volatile as seen in the past year, there is no rush to build new storage tanks. It takes about 12 months to complete storage tank expansion, but some logistics players do not see any financial incentives to add new tanks as the forward prices and tank demand outlook do not support that kind hefty investment.