18-08-2016

Tankers: Floating storage eyed for European naphtha on oversupply

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A few charterers such as Koch are looking to put naphtha on Long Range 2 tankers as floating storage in the Mediterranean region because Europe has been bursting at the seems with naphtha over the last two quarters against the background of a closed arbitrage to the Far East, sources said Wednesday.

“Koch was asking questions to put a LR2 tanker as floating storage on Tuesday, but I am not too sure if that was naphtha. Nonetheless, we declined as we don’t want to lock-in the prices at such low levels given that market is very weak. But, we expect the markets to bounce back after the summer,” a shipowner said.

Koch declined to comment.

According to market participants, there are two options for charterers to deploy a ship as floating storage. Firstly, is by putting it on time-charterer, and secondly by putting the ship on a demurrage.

The cost of putting a ship on a time-charter is around $18,000-$19,000 a day for a year, while if it goes on demurrage it’s around $20,000-$21,000/day.

A few shipbrokers said Koch was looking to put naphtha into floating storage, and it’s likely to get a ship on demurrage.

Sources said one LR2 loaded with naphtha was being used as floating storage in Gibraltar, while another LR2 carrying naphtha was heard on its way from the Russian Black Sea port of Tuapse to Gibraltar. This second LR2 was expected to be used as floating storage because the current contango as well as the physical discount — CIF NWE naphtha physical cargoes were assessed Tuesday at a $6/mt discount to the September swap — could offset the cost of demurrage.

The naphtha market has remained bearish, the September crack was trading at minus $5.70/b at noon London time Wednesday, up from minus $5.85/b at market close Tuesday, while the September/October swap spread was seen trading at minus $5.00/mt, versus minus $5.25/mt at market close Tuesday.

“We need to see the August/September spread weaken for that to be economic,” a trader said when asked about the logic for keeping naphtha in floating storage.

Source: Platts 

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