Oil-filled tankers are crowding a narrow waterway off Singapore as they wait out a slump in global consumption of fuel which has eroded demand and increased the utilisation of ships to store cargoes.
According to Rahul Kapoor, Head of Commodity Analytics and Research at IHS Markit, there are are currently around 60 clean fuel tankers anchored along the busy strait – more than the usual 30 to 40 ships.
As onshore tanks fill up, some ships are used to hoard fuel at sea. The remaining ships are perhaps parked and waiting to be rerouted to any willing buy in Asia and the world amid the COVID-19 battering the world economies.
Ships moving from major refinery hubs such as China and South Korea are filled with oil products including jet fuel and gasoline. This is spurred by the crash in domestic demand and burgeoning stockpiles in the two countries.
These ships are making their way to the Singapore Strait where the surplus situation is worsened by the offloading delays at the city state. According to shipbrokers and traders, compared to the usual 4 to 5 days, ships now have to wait around two weeks to discharge cargoes in the country, thus leaving ships stranded in local waters.
Traders, refiners, and infrastructure companies are forced to seek alternatives such as ships and pipelines due to the decline in storage options globally with onshore tanks quickly filled to capacity.
Those who could obtain some highly-wanted tanks in Singapore were being charged more expensive rates even though the country stopped renting out space to new customers, Bloomberg reported.
“Major fuel-exporting countries are facing difficulties finding homes for their surplus barrels,” remarked Sri Paravaikkarasu, Director of Asia Oil at Industry consultant FGE.
“Crude processing rates at refineries in the country have perhaps declined to about 60 per cent and it could decline to as low as 50 per cent in the second quarter, she added.
Across the region, the onshore storage is experiencing the squeeze. Last week, tanks were 95 per cent full in India as refiners struggled to find space to keep their excess fuel, even resorting to depots and pump stations.
In the middle of April, fuel stockpiles increased to four-year high in the country.
The next best alternative is now to use tankers. According to estimates by the analytics firm Vortexa, floating crude oil storage in Asia is at a four-year high. Similarly, data intelligence firm Kpler considered the waters off Singapore and Malaysia in their estimations.
As of 23 April, the firm found that the volume of clean fuels rose 45 per cent month-on-month. This included diesel, jet fuel, gasoline, and naphtha stored on ships to 6.64 million barrels.
Alongside the increasing demand for floating storage, freight rates for clean and dirty tankers have also risen sharply across the world. While waiting for more buying interest from customers and to save fuel, shippers are adopting a strategy called slow steaming.
This strategy entails shippers to deliberately lower the speed of tankers so that shipments’ transit time also increases.