Commodity trading houses and the trading units of oil majors have hired oil storage in South Korea to keep crude in tanks until Chinese and general Asian demand recovers from the blow the coronavirus outbreak has dealt to the market, trading sources tell Reuters.
Glencore, Trafigura, Mercuria, and the oil trading unit of France’s Total have rented a total of nearly 15 million barrels of oil storage tanks from Korea National Oil Corporation (KNOC), the sources told Reuters.
KNOC currently has nine stockpiling bases with a capacity of 136 million barrels, plus another 10 million barrels of underground storage under construction, according to the state-held South Korean company.
At least one trader has also provisionally rented a supertanker for short-term floating storage, the sources said.
The depressed demand flipped the Brent futures curve in early February into contango—the state of the market in which prices for delivery at later dates are higher than prompt prices—a market situation signaling oversupply and one which traders use to store oil for delivery at a later date.
In recent weeks, traders have been scrambling to find buyers of crude cargoes in Asia, as Chinese demand slumped on the coronavirus outbreak and buying interest in broader Asia was muted due to low refining margins.
Last week, the spot market for Middle East crude cargoes loading in April was virtually non-existent, as demand continued to be depressed due to the coronavirus outbreak while buyers were waiting for cargoes to become even cheaper than they are now.
Traders are now betting on a rebound in crude buying in China and Asia once the situation returns to normal, Reuters’ source said.
But before the situation returns to normal, it could get worse, with Chinese refiners slashing refinery runs and oil suppliers slashing prices for the Asian market.
Chinese crude throughputs have been cut by 1.1 million bpd in Q1, and are now expected to drop by 500,000 bpd year-on-year this quarter, the IEA said last week, noting that the coronavirus will lead to the first quarterly contraction in global oil demand in more than 10 years.
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By Tsvetana Paraskova for Oilprice.com
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