Firms have stashed their crude surplus in South Korea as coronavirus slows demand
17 February 2020 - 16:54
byJulia Payne, Dmitry Zhdannikov and Florence Tan
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London/Singapore — Top oil traders have rented millions of barrels of crude storage in South Korea in February to hold excess supplies, betting on a demand spike after China recovers from the effects of the coronavirus outbreak, trading sources said.
Supplies in the region are piling up after refineries in China, the world’s largest crude importer, cut output by about 1.5-million barrels per day (bpd) over just two weeks.
Trading firms Trafigura, Glencore and Mercuria, as well as the trading division of French oil major Total, have rented close to 15-million barrels of storage tanks from South Korea’s state oil firm Korea National Oil Corporation (KNOC), the sources said.
The traders took on new storage leases for three or six months, with a contango market structure — in which longer-dated oil futures trade at a premium — defraying costs while they wait for a rebound in demand after China recovers from the outbreak, said the traders.
The virus has severely hit prompt demand, causing a build-up of crude meant to be sold to Chinese refiners after the Lunar New Year holidays, traders said. Cargoes arriving in Asia from late February to April are being offered in the market, they said.
Lower demand from China caused the Brent and Dubai market to flip into contango earlier in February for the first time since July 2019, as prompt prices fell below forward prices.
Traders are also betting on a buying spike once the virus is contained and China’s major refiners ramp up operations, the sources said.
Crude cargoes are being diverted to South Korea, Malaysia, Singapore and locations in China where storage tanks are filling swiftly, sources have said.
A Chinese trader said storage leased in South Korea won’t be enough to hold the overhang in the market, which has already caused spot premiums for Russian ESPO crude, a popular grade among Chinese buyers, to hit a two-and-a-half-year low.
Trading firms have also been booking short-term floating storage. At least one trader said it had provisionally booked a large crude carrier capable of holding 2-million barrels.
A source close to Trafigura confirmed it had taken a substantial position in terms of storage at KNOC for the contango structure. Glencore, Mercuria and KNOC declined to comment. Total did not immediately respond to a request for comment.
KNOC has a storage capacity of 136-million barrels to stockpile crude oil and refined oil products, spread across nine facilities, according to data from the state-owned company.
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Oil traders rent storage as Chinese needs decline
Firms have stashed their crude surplus in South Korea as coronavirus slows demand
London/Singapore — Top oil traders have rented millions of barrels of crude storage in South Korea in February to hold excess supplies, betting on a demand spike after China recovers from the effects of the coronavirus outbreak, trading sources said.
Supplies in the region are piling up after refineries in China, the world’s largest crude importer, cut output by about 1.5-million barrels per day (bpd) over just two weeks.
Trading firms Trafigura, Glencore and Mercuria, as well as the trading division of French oil major Total, have rented close to 15-million barrels of storage tanks from South Korea’s state oil firm Korea National Oil Corporation (KNOC), the sources said.
The traders took on new storage leases for three or six months, with a contango market structure — in which longer-dated oil futures trade at a premium — defraying costs while they wait for a rebound in demand after China recovers from the outbreak, said the traders.
The virus has severely hit prompt demand, causing a build-up of crude meant to be sold to Chinese refiners after the Lunar New Year holidays, traders said. Cargoes arriving in Asia from late February to April are being offered in the market, they said.
Lower demand from China caused the Brent and Dubai market to flip into contango earlier in February for the first time since July 2019, as prompt prices fell below forward prices.
Traders are also betting on a buying spike once the virus is contained and China’s major refiners ramp up operations, the sources said.
Crude cargoes are being diverted to South Korea, Malaysia, Singapore and locations in China where storage tanks are filling swiftly, sources have said.
A Chinese trader said storage leased in South Korea won’t be enough to hold the overhang in the market, which has already caused spot premiums for Russian ESPO crude, a popular grade among Chinese buyers, to hit a two-and-a-half-year low.
Trading firms have also been booking short-term floating storage. At least one trader said it had provisionally booked a large crude carrier capable of holding 2-million barrels.
A source close to Trafigura confirmed it had taken a substantial position in terms of storage at KNOC for the contango structure. Glencore, Mercuria and KNOC declined to comment. Total did not immediately respond to a request for comment.
KNOC has a storage capacity of 136-million barrels to stockpile crude oil and refined oil products, spread across nine facilities, according to data from the state-owned company.
Reuters
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