FEATURE: Mounting NWE Occupancy Prompts Sideways Moves for Fuel Storage
05.18.2020 - NEWS

May 18, 2020 [S&P Global Platts] – Some storage remains. Storage operators beyond ARA get busier. Sellers choose low prices over high demurrage costs.

 
The hit to demand for oil products — notably gasoline and jet fuel — from COVID-19 has meant good business for storage tank operators in Northwest Europe as traders have arbitraged the economics of stockpiling.

Also, and despite widespread market talk to the contrary, there was still space at key hubs as well as room in less conventional locations, storage operators said.
“We hear a lot about ‘storage running out’. This is not necessarily true. There is a difference between occupancy and utilization,” one said.

“There is almost 100% occupancy and all our capacity is rented out and it is also the case for most competitors in the hubs. But it does not mean that all tanks are full,” the storage operator said.

“In Amsterdam-Rotterdam-Antwerp for instance, fuel oil utilization was somewhere around 65%-70% last week (according to market research company Global Insights data)…Clean products have even lower utilization, but for clean it looks like stocks are building quicker in tankers than onshore.”

While space remained, some operators have themselves been looking to acquire extra storage capacity.

“We have definitely seen a big uptake in storage demand since early or mid-March,” a second storage supplier said.

“Considering we were already at 85%-90% occupancy, we did not have many tanks available within our oil segment to start with, but we have been lucky to help some customers by taking on additional storage.”

There were reports of diesel and gasoline moving to tertiary storage in Europe and the US in March, away from ARA.

“This is basically small distributors and retailers stocking up at low prices and filling their storage tanks, and drawing barge cargoes from ARA to inland Germany, Switzerland etc.,” the first storage operator said. “But we did not see such a big surge in barge movements at our terminals,” he said.

“We see all-time highs for fuel oil [stocks], the same for naphtha. Gasoline and jet-kerosene are near the record highs,” a third storage sector source said.
 

Sell Low or Demur

Bunker suppliers may prefer to sell at a loss than have product on a barge, one bunker buyer said.

“They prefer to sell that product at a loss than have product on a barge that cannot take the next cargo [so] they face either demurrage from a vessel with the next cargo or penalties from the terminal as they cannot lift their contractual volumes, which in both cases can be much higher,” the buyer said.

“The contango is also going down, so not much economics to store,” a fuel oil source said.

Floating economics depend largely on demurrage rates. When freight saw a spike in values in May, it was impossible to do new floatings on Handysize vessels, the source said.
 

Contango-Nomics

Jet paper structure remains in a deep contango, further incentivizing storage, with the spread between the May differential swap to ICE low sulfur gasoil futures and June last assessed by S&P Global Platts as $4.75/mt Thursday.

The June/July spread was $6.50/mt and July/August $17.75/mt. The structure continued in a deep contango through to start of 2022 when it was flat.

Inland jet fuel stocks in the Amsterdam-Rotterdam-Antwerp hub, at around 830,000 mt last week, were only 3% lower than their peak recorded level, while total tank storage in ARA was 40% free with a maximum capacity of 11.6 million mt, Insights Global data showed.

The prompt structure of ICE LSGO futures has been in a steep contango the past four weeks. The ICE LSGO inter-month spreads remained in a contango of more than $6/mt until December. The first time the contango narrowed to less than $3/mt was October 2021.

For diesel, it is generally considered that a contango of $6/mt is enough to pay to rent storage, according to sources.

Diesel and gasoil inventories in ARA increased 6% to a 14-week high of 2.518 million mt as of last Wednesday, weekly Insights Global data showed.

ARA gasoline inventories rose 13% over the same period to 1.365 million mt, while naphtha stocks rose 11% to 503,000 mt — the highest levels for both products this year.

With the latest OPEC+ crude oil production deal kicking in and some European countries beginning to ease lockdowns, volumes in storage may be close to peaking.

The gasoline market in particular was underpinned last week, with values moving further away from historic lows recorded last month, while still being weighed on by the volume in storage.

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