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Jet fuel stays at sea as imports overwhelm Europe
[LONDON] A jet fuel market in Europe saturated by imports from Asia and the Middle East has forced sellers to keep their oil offshore on tankers or chose longer voyages as they seek out buyers.
Jet fuel and diesel stocks in Europe have been steadily building as refineries around the world operate at near-maximum capacity to benefit from a rare run of strong profit margins driven mainly by global gasoline demand.
In a sign of the growing pressure, the 90,000 tonne tanker Mindoro anchored for nearly two weeks of the southern coast of England, according to shipping brokers, traders and Reuters ship tracking.
The Mindoro is en route to the port of Fawley, where it will discharge part of its cargo before returning to anchor at sea as it seeks buyers for the rest of its fuel.
A second 90,000 tonne tanker, the STI Lombard, arrived from South Korea and has been anchored off the coast of the Netherlands since last week and still has no dicharging options, according to traders.
Europe, where refineries do not produce enough jet fuel and diesel to meet demand, has become a major destination and storage hub for huge modern refineries such as SK Energy's 840,000 barrels per day Ulsan refinery in South Korea, Reliance's 660,000 bpd refinery in Jamnager, India, and the 400,000 bpd Satorp refinery in Saudi Arabia, a joint venture between Saudi Aramaco and France's Total.
While these imports have taken storage tank levels in Europe's Amsterdam-Rotterdam-Antwerp hub to record highs, future prices are not high enough for most traders to make money from taking out long-term charters on ships to store the oil.
The six-month forward curve on ICE gasoil futures, for example, is in a contango of just under $20 per tonne, a third of where it stood in 2009 when floating storage became widespread.
So traders are adapting, and in some cases have opted to sail tankers from Asia to Europe around Africa instead of the conventional route via the Suez canal, extending the voyage by at least 10 days to around 45 days, a move tantamount to floating storage, but without the long-term commitment or costs.
Tankers carrying some 600,000 tonnes of jet have in recent weeks opted to sail via Cape Horn, according to traders and ship tracking. "It is still good to have jet in the tanks, but there is not much room left currently," one trader said.
The outlook looks dim, with around 2.4 million tonnes of jet fuel already booked for arrival in Europe in October from Asia and the Middle East, compared with an average of around 1.8 million tonnes in recent months, which had already outweighed demand.
The build in jet fuel stocks in the region comes despite a significant pick-up in air traffic worldwide in recent months as economic growth accelerates.
According to the International Air Transport Association (IATA), European carriers saw passenger demand rise by 5.3 per cent in July from a year earlier, more than double June's growth. Figures from the International Energy Agency showed jet fuel demand across the developed world growing by 4-5 per cent in the first two quarters of this year.