Asia/Pacific News
Floating Storage on the Rise as Singapore Sees Record High Fuel Oil Stocks
Singapore's record high stocks and a slowing demand for fuel oil are encouraging traders to temporarily store increasing amounts of the fuel in tankers, Reuters reports.
Seven very large crude carriers (VLCCs) are said to have been fixed for fuel oil storage on short-term time charters, most for 30 and 90 days.
Litasco, Trafigura Beheer BV, PetroChina Company Limited, Koch Industries, Inc., and BP plc are reported to be among the short-term charterers for the floating storage.
"The contango is paying for it at the moment though freight rates have been swinging up and down," one Singapore-based fuel oil trader is reported to have said.
Despite VLCC freight rates climbing to a seven-week high last week after seeing six-year lows at the end of August, traders are still said to be taking advantage of a "steep" contango.
The price difference between 380-cst currently being loaded compared to a month later is said to still be a considerable spread, although it has shrunk slightly since August.
"The structure pays for the floating storage so it's a free option for traders," said a Singapore-based trader, reported to be storing fuel oil in a tanker.
"If the spread (narrows), then you can always discharge and sell and get out of the structure but December should be the furthest that people will store as the structure will not fully pay off past December."
Fuel oil stocks, which are said to have been sitting at almost 30 million barrels on September 16, are predicted to ease next month due to fewer arbitrage cargoes arriving from the west, traders said.
In early September, Morgan Stanley suggested that with the contango trade in crude, along with low freight rates and bunker prices falling to multi-year lows, VLCCs are once again becoming attractive for use as floating storage.
