The global coronavirus pandemic has hit global demand for oil products with transport fuels such as diesel, gasoline and jet fuel seeing extreme contango structures, leading to companies looking at any way to store product.
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Register NowTypically in a contango structure, participants would opt to purchase product on the prompt, store in land storage, or in extreme cases floating storage, and hold the fuel until demand and, in turn, value increases.
However, global lockdowns, which have sharply hit transportation fuel demand, are an extreme the market has never seen.
With demand across the globe seeing record lows, typical inventories and storage options are limited, leading to refiners, blenders and traders looking at more exotic ways to store their product and await more attractive prices.
"Everything that can hold product is being used -- barges, pipelines, Handys," one source said, while a second said: "I think people will soon fill up their bathtubs at the speed it is going."
Products
Light end products and middle distillates tank tops are brimming, and as the contango deepens across products, traders are having to compete for storage at comingled locations, sources said.
"We [in jet] are seeing tanks beginning to top...So now it is an ullage issue...and it is completely choked," a trader said.
Gasoline has followed suit, with demand for it and jet fuel arguably the most affected by the coronavirus pandemic.
"Everything that can hold product is being used," a source said. "Everyone is just sitting on product and hoping for better days," a second gasoline source added.
The European diesel market appeared to fare better than other oil products for two main reasons. There is much more ullage reserved for diesel than other products in Europe and demand for the road fuel has not fallen as much as gasoline, with trucks needed for foods and deliveries of various goods and agriculture activity picking up in spring.
However, the storage situation was also becoming a concern for diesel.
According to market participants, storage locations other than the Amsterdam-Rotterdam-Antwerp hub, have reached capacity or were close to it because of the plunge in road fuel demand. With freight rates rising -- to record highs in some instances -- and making storage economics difficult, there were few other places for the surplus diesel to go.
Demand for naphtha both as a blendstock and feedstock in Europe was still thin but significant volumes seemed to have found home in a recovering Asian market, sources said.
However, the lack of vessel availability for storage and transportation caused delays and disruption in connecting European supply with growing Asian demand, sources said.
"The freight is soaring and lots of ships are waiting at discharge ports, but there is no ullage to discharge," a naphtha trader said.
Going forward cargoes must find alternative homes to floating storage as shipowners cash in to ensure they lock strong freight rates, well aware that with full tanks on land they may not be able to discharge products for months.