Feature: Floating products in tankers offshore comes into focus on USGC

Shipping sources expect floating storage interest on the US Gulf Coast to increase in coming weeks for products with contango structures, as the coronavirus pandemic and a global flood of cheap oil have destroyed spot demand.

An uptick in fixing for floating storage could give shipowners in the Americas a reprieve from a relatively inactive market with lengthy ship availability and bottomed rates. Freight on the MR USGC-trans-Atlantic route has fallen 37% month on month, assessed Wednesday at w85 or $17.57/mt.

A shipbroker said everyone has been asking about floating storage, adding, "The market supports it and some people need to [store]. They will run out of their own tonnage eventually. It's going to be the theme of weeks to come."

Shipping market participants said spot storage demand has likely been diminished in part by oil majors using their own time charter tonnage or fleet for floating storage use. With the necessity to export products that go onto floating storage, charterers must consider the forward curve of the products to decide whether or not to store the cargo on the water.

The coronavirus-caused decrease in product exports has made spot tankers in the area look for work, resulting in ample Medium Range tonnage on the USGC. Comparatively, tonnage in Europe and Asia, particularly for Long Range 1 and Long Range 2 tankers, has been tight due to floating storage demand, thus keeping freight strong for those vessel classes. Recent storage rates for LR1s stood at $38,000/d for 40-60 days in the Mediterranean.

Such bookings have not yet been observed in the Americas spot market. Americas shipping sources have reported that many oil majors and traders are making inquiries, though fixing has been minimal, with just one MR tanker fixed on the USGC for 35- to 180-day storage by Lukoil at $19,500/d. USGC inquiry has focused on using MRs due to a lack of available LR tonnage infrastructure limits in the region.

RBOB CONTANGO MOST VIABLE FOR OFFSHORE STORAGE

Charterers looking to store products on tankers offshore are most likely to load gasoline or diesel, according to shipping sources.

So far, only gasoline forward curves indicate profit in six months for offshore storage, but tightening onshore capacity in the USGC could push traders and refiners to turn to the more expensive offshore storage option as well. Demand-side shock and storage constraints on the pandemic could continue to pressure markets into ever-widening contango.

"From our perspective, tanks are pretty much a non-story if you're looking to book in the USGC, they're pretty much leased out, but may not be completely full," said Steven Barsamian, Vice President of Operations at Tank Tiger, a terminal storage clearinghouse. "If you're looking for incremental storage play and you can't find another lease, floating storage could be an option."

The last-done 38,000 mt USGC storage tanker in late March at $19,500/d was equivalent to $15.39/mt for 30 days, $30.78/mt for 60 days or $92.34/mt for six months.

The six-month carry for NYMEX RBOB gasoline reached more than 27 cents/gal or $95.65/mt at the end of March, the steepest structure across six months since 2016. Gasoline's structure takes into account the shift in October between winter and summer specifications.

For NYMEX ULSD, despite a steep contango, current futures into the next six months do not pay out at the $92.34/mt storage level. The NYMEX ULSD curve for the first- and sixth-month contracts settled at a 17.92 cents/gal or $56.07/mt carry on Wednesday.

JET, NAPHTHA NOT YET PROFITABLE TO STORE

For jet fuel, Gulf Coast product has the steepest curve, though future prices also do not cover the rates needed for offshore storage. The spread between the first- and six-month swap at the end of March was only as steep as minus 15.75 cents/gal, or $52.13/mt.

Market sources said that although floating storage was a good option for other products, it did not make sense for naphtha. One source said demurrage rates, which were last talked between $19,000/d and $20,000/d, were too high. Exporting naphtha barrels seemed to be a more viable option, and barrels have been sailing to Asia to meet petrochemical feedstock demand in the East amid a lack of domestic demand.