Major oil trading firms stow diesel, jet fuel on supertankers as demand rebound eyed

PUBLISHED: Wed, 21 Apr 2021 07:21:09 GMT

* At least 7 VLCCs carrying clean products from Asia – ship tracking data * EFS trades around minus $11 a tonne, typically unworkable for arb shipments By Koustav Samanta SINGAPORE, April 21 (Reuters) – Major oil trading companies are stowing diesel and jet fuel on newly built supertankers in Asia and Africa in anticipation of COVID-19 vaccinations driving prices higher in the months ahead despite the activity being less lucrative now than last year. Trafigura, Glencore and Vitol are holding about 1.5 million tonnes of the industrial and aviation fuel on at least seven Very Large Crude Carriers (VLCCs) off Singapore, Malaysia, Sri Lanka and Africa, according to shipping sources and data from analytics firms Vortexa, Kpler and Refinitiv. These storages are helping Asia hold back excess supplies and prevent added pressure on prices as China ramps up diesel exports from refining overcapacity while renewed lockdowns in India to curb the spread of COVID-19 threatens to cool fuel demand at the world’s third largest oil consumer. “Given how narrow the current East-West arbitrage window is, I would expect traders to opportunistically load gasoil on newbuild VLCCs to head to the West, taking advantage of lower freight costs on a per barrel basis,” said Serena Huang, Asia lead analyst at Vortexa. The exchange of futures for swaps (EFS), which determines the gasoil price spread between Singapore and Northwest Europe , has traded around minus $11 a tonne over the last month – a level that typically makes it unworkable for arbitrage shipments. Gasoil arbitrage to the west is usually profitable when the EFS trades at about minus $15 a tonne or below, although it also depends on factors such as freight rates and voyage length, according to trade sources. “We have seen a number of vessels being fixed to arb to the west (recently), but they have generally been VLCCs,” said Kevin Wright, Kpler’s lead analyst for Asia Pacific. Unlike last year where traders profited from storing oil because of a wide contango structure, the prompt monthly price spread for the benchmark gasoil grade in Singapore has narrowed its contango structure by 55% in the last six months, Refinitiv Eikon data showed. In a contango market, prompt prices are lower than those for future delivery, which tends to encourage holders of physical barrels to store them and sell later to secure higher prices. But, a narrowing contango indicates the market may flip back into backwardation – the opposite of contango that is usually seen as a sign that there is demand for the product currently. Among the companies, Trafigura is the most active, chartering five of the seven VLCCs to load diesel from China and South Korea between March and April for UK, West Africa and Sri Lanka, the data showed. VLCC Name Charterer Product Carrying Location Details / Destination Hunter Trafigura 195,000 tonnes Heading for Cape diesel of Good Hope Doris Trafigura 251,000 tonnes Heading to Lome, diesel West Africa Dickens Trafigura 66,000 tonnes Galle, Sri Lanka gasoil Erbil Trafigura 274,000 tonnes Lome, West Africa diesel Dhalkut Glencore 281,000 tonnes Lome, West Africa ultra low sulphur diesel Bahla Vitol 170,000 tonnes jet Malaysia fuel Sur Trafigura 98,000 tonnes Singapore gasoil + 129,000 tonnes jet fuel Sources: Vortexa, Kpler, Refinitiv (Reporting by Koustav Samanta; Editing by Florence Tan and Muralikumar Anantharaman)

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