At least two companies are planning to ship diesel in bigger-than-usual tankers from Asia to Europe in what traders said is a rare move as cheap oil drives up diesel supply and slowing economies dent demand.
French oil major Total (TOTF.PA) has provisionally chartered the very large crude carrier (VLCC) Alice on a six-month time charter to ship ultra-low sulphur diesel (ULSD) from Asia to Europe, traders and shipbrokers said. A VLCC can carry roughly 2 million barrels of oil.
The ship will load diesel from Singapore or Malaysia to head to Europe and possibly ship crude oil back, one of the sources said.
Oil trader Vitol [VITOLV.UL] has provisionally chartered the Suezmax Diligent Warrior to load 120,000 tonnes of diesel from South Korea to Europe in early February, the traders said.
Both vessels are newly built, which makes it cheaper to ship clean products on their maiden voyages, sources said. They are currently anchored at Gunsan port in South Korea, according to Reuters shiptracking data.
Vitol and Total do not typically comment on trading matters.
The cargoes were likely fixed when arbitrage economics to ship diesel from east to west were profitable though this is no longer the case, traders said. LGOAEFSMc1
“If you grab the barrels at the right time, the unusual arbitrage from the far east to (Europe) for ULSD works,” a source said.
Chartering larger vessels like a VLCC or a Suezmax, which usually carry crude oil or fuel oil, to ship diesel on this route is rare, the traders said. Diesel is typically shipped in long-range-sized tankers from India or the Middle East to Europe or from South Korea to West Africa on bigger vessels.
Chartering bigger vessels when the price structure of gasoil is in contango, where prices of cargoes loading in current months are cheaper than those loading in later months, also makes floating storage possible if the traders are not able to find buyers, they added.
“The cost of freight is still too high to make floating storage work but I believe in Europe (landed) tank cost rates are higher,” a Singapore-based middle distillates trader said.
Refiners are maximising processing rates to reap cheap crude prices and strong gasoline demand, which boosts the supply of diesel. Margins for the fuel fell in Asia to a more than 6-year low last week. GOSGCKMc1
(Reporting by Jessica Jaganathan; Editing by Christian Schmollinger)