Tens of millions of barrels of crude and oil products stored on tankers at sea due to the coronavirus crisis are being sold, in a sign fuel demand is recovering as lockdowns ease, shipping sources say.
Fuel demand tumbled as much 30% from March to May, with some surplus stored at sea as land storage filled up.
Crude held on tankers fell below 150 million barrels by the end of June, down from more than 180 million barrels in late April, IHS Markit estimated.
Refined products held on vessels dropped to 50 million barrels from a mid-May peak close to 75 million barrels, IHS said, adding gasoline stocks were the fastest to be offloaded.
“Volumes shown under floating storage can potentially drop rather fast during July,” Fotios Katsoulas of IHS said, adding there were several tankers off China waiting to discharge.
Demand for floating storage at the peak of the crisis was helped by a market contango, a price structure where cargoes for delivery in the shorter term are cheaper than those for later delivery, encouraging traders to store fuel until prices pick up.
As the contango has narrowed with rising demand, there is less incentive to store fuel.
In addition, OPEC, Russia and other allies, a group known as OPEC+, have curbed production and output from the United States and elsewhere has fallen, leaving less surplus oil to keep at sea, a more costly alternative to onshore storage.
“With output levels lower, this has reduced the need for storage on land and combined with a reduction in price contangos, there is less of an incentive to store crude at sea,” said Rebecca Galanopoulos Jones, with broker Alibra Shipping.
Clarksons Research estimated 218 million barrels of crude was held on tankers by June 26 from a peak of 290 million barrels in early May, while about 70.5 million barrels of oil products were stored versus a May peak of 100 million barrels.
“We believe floating storage is going to gradually decline from now and reach normal levels sometime during the autumn,” a spokeswoman with shipping group NORDEN said.
(Editing by Dmitry Zhdannikov and Edmund Blair)