[SINGAPORE] Oversupply in oil products, in tandem with a crude glut, has brought back memories of the 2008-2009 crisis, but traders say the climate is not right now for a repeat of large scale fuel storage at sea.
Then, crashing oil consumption and low shipping rates drove nearly 100 million barrels of crude oil and about 85 million barrels of middle distillates into floating storage.
When market oversupply is extreme, immediate prices can collapse so severely that the stronger future prices enable traders to make money by storing them - even on ships at sea - thus creating some demand. The price structure is termed contango.
But despite the glut now, and the brimming tanks of jet fuel and diesel it has created, the contango needed to store oil products at sea is far away, traders said. The six-month forward curve on ICE gasoil futures, for example, is around $20 per tonne, a third of where it stood in 2009.
"Even if the storage on land filled up, it doesn't mean people are going to lose money on floating storage," one products trader said, adding that lower refinery runs are more likely.
Freight costs for long-range clean product tankers are also currently at five-year highs - driven by the glut itself, which created need for vessels to ferry oil products around the world and to store fuel oil and crude oil.
"Rates were really low back then," Erik Nikolai Stavseth, shipping analyst with Arctic Securities, said of the supercontango period in 2009. "This time around...you have a lot more oil, and this is sucking up tonnage."
As a result, traders and analysts say there is little chance floating storge will emerge, despite record high oil products stocks in Europe's Amsterdam-Rotterdam-Antwerp hub and close to four-year highs for middle distillates stocks in Singapore.
If traders lack incentive to store products, and consumers are not using more, the picture is dim for oil refineries and crude sellers.
"The economics are punishing," said Robert Campbell, oil analyst with Energy Aspects said of floating storage. "The disincentive to produce would be very strong," he said, adding the overhang is "going to get worse before it gets better."