FEATURE: European FOB oil products hit long-term lows vs CIF on tight storage

New York — European FOB values for a host of refined oil products -– from 0.1%S gasoil to naphtha -— have fallen to record lows versus CIF values following a sharp rise in clean tanker freight rates, especially in the Mediterranean.

With the coronavirus pandemic having decimated demand for oil products and the crude from which they are made, land-based storage has become very full, leading to inquiries for floating storage.

"The [FOB cargo] market is out of this world. No one was expecting anything like this," a trader said.

Across the barrel, many of S&P Global Platts refined product assessments on an FOB basis cratered Tuesday as the cost of clean tankers shot higher.

FOB cargoes of 0.1% gasoil in the Mediterranean were assessed at a $39.75/mt discount to CIF cargoes, the widest the spread has been since the assessments began in January 2008, Platts data showed. In Northwest Europe, the CIF-FOB spread blew out to its widest level since 2013.

For ultra low sulfur diesel, CIF Med cargoes slumped $44.50/mt to $192.25/mt Tuesday to be at a record premium of $33.50/mt over FOB Med ULSD cargoes. Platts started assessing Med ULSD cargoes on October 1, 2008.

As a result, floating storage for ULSD looked increasingly viable, a source said. "Floating storage is workable on paper in NWE thanks to the steeper contango, but I would need to make new calculations."

Looking at gasoline, benchmark Platts 10 ppm FOB Mediterranean cargoes were assessed at $118.75/mt Tuesday with CIF Mediterranean cargoes at $146.75mt, a record discount of $28.00/mt.

"Freight is crazy," a gasoline source said. "I have seen some fixtures at Worldscale 400...it could be for floating storage."

In the Mediterranean naphtha market, CIF cargoes were assessed at a record premium of $37.75/mt over FOB Med cargoes Tuesday, as the premium increased $9.50/mt on the day.

In the Mediterranean, FOB jet fuel cargoes were assessed at a $50.00/mt premium to CIF jet cargoes Tuesday, the widest the spread has ever been since at least October 2012.

"A lot of people want jet and diesel to take advantage of contango," a trader said Tuesday.

Refinery selling slows

"FOB Med values are rather weak for the time being due to a lack of outlets for product, such as storage tanks and consumption from end-users," a source said. "On top of that, we are missing shipping tonnage necessary to load FOB barrels."

That take on the market lined up with comments from other sources who said refineries seemed reluctant to sell spot cargoes on an FOB basis into a severely depressed cash market, especially given that a contango market structure was signaling that prices will recover in the future.

Platts data for Mediterranean refinery margins showed cracking yields for most types of crude at long-term lows. For example, Platts assessed the cracking yield for Aram Medium crude at an Italian refinery at $14.03/b Tuesday, the lowest since the assessment began in 2012.

S&P Global Platts Analytics said Tuesday it estimated that planned maintenance, unit idling, and other runs cuts for the week ending April 17 averaged 3.1 million b/d for refineries in Northwest Europe and the Mediterranean, with as much as 30% of that figure the direct result of weaker market demand due to the coronavirus pandemic.

Looking ahead, Platts Analytics said it saw "continued idling of capacity and severe discretionary run cuts" for the rest of April.

Brimming storage

With refined product storage in Europe –- most notably the Amsterdam-Rotterdam-Antwerp hub -— getting close to being full, using clean tankers for storage has tightened the availability of tonnage in Europe, sending freight rates higher.

As more vessels are tapped to serve as floating storage, shipowners have cashed in. On Tuesday, Platts assessed the Black Sea-Med clean tanker rate, basis 30,000 mt, at w425, the highest since January 2006.

Also Tuesday, the cross-Med Handysize tanker freight rate was assessed at w400, the highest since January 23, 2006, after the biggest day-on-day increase since the assessment was launched in 1991.

"Shipowners are aware that they might be unable to discharge given ullage unavailability. Therefore, they want to obtain the best possible rate in the case they cannot discharge and have to wait while they could be locking in greater returns in the future," an owner said.

While ARA storage was not yet totally full, it remained severely oversupplied, a source said, adding that until lockdowns were lifted, "nothing else will be able to balance Europe's refined product market...it is going to be a bumpy ride."

While the ARA hub is connected to storage along the Rhine and other rivers, data from Platts cFlow, trade flow software, showed a build-up of laden cargoes in the area. For example, the Largo Sun has been anchored near Antwerp for the past six days holding a cargo of gasoline from France.