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Eight newbuild VLCCs taken on subjects with clean product floating storage options

Highlights

New VLCCs can be used to store clean products

Clean tanker market could lose demand equivalent to 60 MRs

Contango structure, closed arb West favors storage option

Singapore — At least eight newbuild VLCCs have been placed on subjects on short-term time charter of up to six months with options to store oil products by global trading companies and oil majors, several shipping industry executives in Singapore, Japan and South Korea said Sept. 25.

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The companies include Trafigura, Clearlake and Total, the sources said. None of the companies could be reached for comment, but sources with direct knowledge of the matter said the new ships are for delivery between now and November.

The development is significant because it could remove up to 60 spot Medium Range size cargoes from the market, significantly reducing demand for clean tankers. MR freight rates had already been under downward pressure in recent months due to a dearth of demand and with the new super tankers being snapped up for storage the trend could be reinforced.

"A large volume of mainly gasoil but also some jet fuel is going to disappear from the spot freight market," said a broker in Singapore.

A VLCC can carry up to 300,000 mt of oil products if it has not loaded any crude or fuel oil cargo previously -- once it has carried a dirty cargo using it for clean products is no longer viable.

"There is now an increased interest in taking these new supertankers because they are relatively cheaper and can hold larger volumes," said a shipping source in Tokyo.

The eight VLCCs have been chartered at $38,000-$42,000/day on the assumption that the holding costs maybe recovered at the time of selling the cargoes a few months later, sources said.

Gasoil contango

Floating storage is currently an attractive option in the Asian gasoil market because of the prevailing contango structure -- where prices further down forward are higher than at the prompt -- while the East-West arb is not viable for gasoil, sources said.

In the derivatives market, the front-month FOB Singapore gasoil timespread has remained in a contango structure since Aug. 3. The October-November Singapore gasoil timespread was assessed at minus 57 cents/b at the 0830 GMT Asian close on Sept. 25, widening 8 cents/b since the start of the week when it was at minus 49 cents/b on Sept. 21, according to S&P Global Platts data.

The front-month Exchange of Futures for Swaps -- which measures the relative strength of the FOB Singapore 10 ppm sulfur gasoil swap against the ICE low sulfur gasoil contract, and is a key measure of the arbitrage window between Europe and Asia -- firmed 16 cents/mt day on day to $2.96/mt at the Asian close Sept. 25.

A strong EFS spread indicates that trade flows from East to West are not economically viable, meaning floating storage is the more viable option, sources added.