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Asian oil market contango boosts demand for crude, gasoline storage
[SINGAPORE] The persistent glut that has knocked more than 50 per cent off oil prices since June has cheered tank farm companies and shipowners operating in Singapore, who are fielding increased enquiries for crude and gasoline storage space.
While the oil stocks build-up has pushed Asia's entire oil complex into contango - meaning near deliveries are cheaper than future months - the case for storage has yet to spread beyond crude and gasoline as the prompt-future price difference for other oil products cannot cover leasing costs.
"When it comes to a contango, storage guys are definitely happy," said a Singapore-based representative for an oil storage company.
"But most traders are cautious and not taking huge positions. A lot of enquiries are for spot storage." A few terminal operators in Singapore and nearby Malaysia said deals have been reached in recent days, but declined to specify the lessees as the information is confidential.
"We've got a few (gasoline) deals done for the short-term, 3-month period. The market is generally more upbeat," said a Singapore-based commercial director with a terminal operator.
The contango between the first two contract months for gasoline has widened to about US$1.20 cents a barrel, from around 5 cents since December, data from pricing agency Platts showed.
Converted to a cubic meter (cm) basis, the US$7.50 per cm contango is comparable to leasing costs of US$6.50 to US$8 a month per cm. That means the profit on a cargo bought now, held in storage for a month and sold could cover tank rentals.
Enquiries for gasoil storage have also picked up slightly as traders expect a flush of supply to widen its contango further, but deals have yet to materialise, industry sources said.
Landed storage for gasoil or middle distillates requires a contango of at least 80 cents a barrel to profit, but the price difference between the two near-month contracts is only about 10 cents a barrel.
Naphtha and fuel oil storage would make sense only at contango spreads of US$10 and US$6 a tonne, respectively, traders said, but they are currently running at about US$4 and 25 cents a tonne. The case for Brent crude storage is stronger, with forward prices consistently higher than prompt contracts. March Brent crude, for instance, is around US$10 a barrel cheaper than contracts a year out.
As commercial land storage for crude is limited in the region, traders have hired super tankers as floating storage, mostly over a 12-month period, and this could mean a further downward spiral for crude.
Once crude starts going into storage, consultancy Energy Aspects said in a note, the first-second-month contango for Brent could widen to US$3, especially after peak winter crude demand tapers off and charter rates for very large crude carriers ease.