UAE traders store diesel raising bunker premium

High capacity oil storage tanks in Jebel Ali and Fujairah are following the global trend of storing diesel for sale six to seven months later, market insiders told Emirates Business . Even though crude oil is no longer in a contango, diesel, one of its distillated by-products, is priced higher by $3 (Dh11) to $6 for contracts due for clearance six to seven months later. This has prompted traders to resort to storing diesel. And according to recent reports, this method has substantially increased the bunker premiums (the margin traders make in selling marine fuel) and the ship freight rates. "Diesel's demand is at its lowest ebb now. It is expected to rise in winter when people, particularly in Europe, need to operate heating systems. So oil is being stored in storage tanks and on high seas," said a Dubai based trader. "There is no publicly available data for stocks in the UAE but we can assume that every tank around the world is full, so the storage in Fujairah and Jebel Ali is almost certainly brimming with product," affirmed Owain Johnson, a business development manager with Argus, the global energy information provider. "Diesel (gasoil) and jet fuel – the middle distillates – are definitely being stored in huge volumes all round the world," he said. The global figures speak for themselves. European gasoil inventories are at nearly 19 million barrel, almost twice where they were a year ago, while middle distillate stocks in Singapore are at 12.8 million tonnes, compared with 89m tonnes at the same time last year and the Middle distillate stocks in the US are at 25-year highs, said Johnson. "The latest Argus estimates are there are more than 45m bl of middle distillates being stored offshore on tankers around the world. This gives a global total of more than 650m bl of middle distillates in storage – a historic record." Market insiders said it "makes sense" to store middle distillates like diesel because the prices are weak at the moment and the market is in a steep contango. "Friday's price of physical gasoil in Singapore with 0.5 per cent sulphur was $66.70/bl, but the fourth quarter 2009 price is $69.35/bl and the first quarter 2010 price is $72.45/bl," said Johnson. In fact, a trend to increase bunker premiums, were pegged at about $15 a tonne for the week ended June 19 versus about $7 per tonne in May. According to Argus data, freight rates rose from $ 12.55 tonne on April 1 to $ 20.08 a tonne on July 10. Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here .