Singapore's storage rates for dirty products surge over 25% as tanks start to top globally

Singapore — Oil traders are shelling out big bucks to secure storage for dirty products at the Asian trading hub of Singapore as the cost to lease landed dirty tanks rise well over 25% from a year ago in recent months, to about $7/cubic meter a month. This comes on the back of plummeting oil demand coupled with a consistent supply flow, that has spurred a mad scramble for oil storage space -- both on land and sea -- as all of the world's available oil storage infrastructure inch ever closer to maximum capacity.

According to tank operators, the cost of storing crude oil as well as refined products like fuel oil in landed storage in Singapore have risen on the back of a deluge of inquiries by traders due to the demand destruction brought about by the coronavirus pandemic, which has seen prices take a beating.

Not only are storage costs on the rise, oil traders are leasing tanks for a longer duration than before, signaling that the industry is digging in for a stretched out glut in oil markets.

"The shortest duration of a storage contract might have been three months previously, now the trend is for six months at a minimum, and in fact, we have people looking for storage for as far out as end-2021," a storage tank owner based in Singapore said.

Besides being home to one of the largest merchant storage capacities in the region, Singapore is also the world's largest ship refueling station with more than 47 million mt of bunker fuel sold at its ports in 2019.

Industry insiders say that nearly all of the 5 million-6 million cu m of storage capacity for low sulfur bunker fuels has now been leased on long term contracts. While prices vary between the storage terminals, depending upon the infrastructure and terminal capabilities, market participants report that the cost of leasing storage for the spectrum of crudes and oil products have increased by more than 25% year on year to about $7/cu m a month for dirty storage.

Traders said that the supply glut for crude and its products have resulted in increased competition for storage space and substitution of products with those featuring a steeper market contago, where possible.

However, given the difference in qualities of the products, traders said the dynamics for landed storage are unlikely to change as quickly as that of the offshore market.

The oversupply of crude oil remains much steeper as producers have been slow to cut supplies. Refiners, on the other hand, have been quick to cut runs to adapt to the slump in demand, leading to relatively smaller surpluses.

As a result, traders reported that certain refined products have already made space for the storage of crude. The 3 million-barrel ultra large crude carrier 'Europe' has been repurposed to store crude oil, having been previously used to store low sulfur fuel oil for months near Singapore.

Alongside 'Oceania', the only other ULCC in the world, 'Europe' arrived in waters off Singapore last year, bringing in millions of barrels of low sulfur material ahead of the implementation of IMO 2020 regulations in January.

LONG-TERM LESSEES BENEFIT

Companies that hold long-term storage lease contracts stand to benefit for having secured the space at much lower rates before the race for tanks began as the rise in rates do not automatically apply to these contracts.

"We only started to see [rates surge] from around a month ago, when the contango in fuel oil started to become steeper," a source said.

The contango at the front of the Singapore Marine Fuel 0.5%S swaps curve has widened to average $8.99/mt so far in April from the March average of $5.11/mt, Platts data showed.

During the same period, the outright value of Singapore Marine Fuel 0.5%S cargo has dropped 20.04% to average $232.02/mt as compared with the March average of $290.17/mt, Platts data showed.

"Some contracts may have [a provision for] a clause, which includes what is called a step-up rate, whereby a new pre-agreed fixed price kicks in at the start of a new quarter, but all of this is negotiated at the time of signing, so it won't take into account the contemporary market situation," an executive with a tank operator said.

It is amid this lack of available landed storage that floating storage inquiries have also increased over the last month in Singapore and beyond, with at least one Indian refiner currently storing its gasoline output on a tanker off West Coast India, while looking for yet another tanker for storage purposes. The refiner is waiting for when the country emerges from lockdown -- currently in place until May 3 -- as demand is expected to pick up then.

Rates for floating storage tankers, a shipowner in Singapore confirmed, which are typically lower than landed storage rates, currently average around $5.50/cu m per month, compared with approximately $4-$5/cu m per month a few months ago, adding that they had received inquiries from several traders, often asking to be notified when a tanker, or even part of a tanker, becomes available for storage of dirty products.