In another sign that the second coronavirus wave is hitting fuel demand, oil trading firms are looking for new supertankers to use them as floating storage for diesel as demand is expected to suffer from the renewed lockdowns in major European economies, trade and shipping sources told Reuters.
Diesel in global floating storage is expected to increase as major oil firms and trading houses are on the prowl for supertankers, expecting lower than usual diesel demand from the industrial, heating, and transport sector in the coming months.
Concerns about fuel demand intensified this week after two of the largest economies in Europe—Germany and France—announced lockdowns, which the market was not expecting two or three weeks ago. Industry professionals and executives did not believe that countries would resort again to nationwide lockdowns. Yet, France did, and as of Friday, people are allowed to go out only for shopping for essential items, for medical reasons, or for an hour-long exercise. The measure will last until the end of November, French President Emmanuel Macron said.
As the market braces for faltering economic and oil demand recovery, oil traders are reportedly looking to take advantage of the currently low tanker rates and the contango structure of the market to store diesel now with the intention of selling it at a later stage when demand and prices recover.
Middle distillates have been struggling to find markets amid weak demand in recent months. Slower-than-expected fuel demand recovery amid the economic slump and still precariously low aviation fuel consumption have sent distillate stocks around the world to multi-year highs. This, in turn, has led to disastrously low refining margins in every part of the world, discouraging refiners from processing increased volumes of crude into fuels.
Probably one of the strongest signals of a growing global glut in distillates is increased interest from traders to hire oil product tankers to store diesel as floating storage, tanker owners and tanker-tracking firms told Bloomberg in the middle of September.