By Manisha Jha
(Bloomberg) — Slumping oil prices are spurring 4,000-mile (6,400-kilometer) diversions of tankers filled with diesel and jet fuel as the price of ship fuel plunges, opening up trading opportunities.
At least five tankers will deliver refined products to European ports in August and September, sailing around South Africa rather than using the normal shortcut through Egypt’s Suez Canal, ship tracking data show. The falling cost of fuel oil, used to power ships, has made longer voyages viable at a time when there are advantages for traders to keep cargoes at sea. Long-distance shipments between continents have increased this year, according to Torm A/S, world’s second-biggest publicly traded product-tanker owner.
Brent crude futures plunged about 50 percent since August last year as OPEC nations kept pumping more than the market needs. Across oil markets, the rout triggered what traders call contango, a price pattern that lessens the need for speedy oil deliveries because future fuel prices are higher than immediate ones.
“There’s massive demand to move oil products over very long distances,” Erik Nikolai Stavseth, a shipping analyst at Arctic Securities ASA in Oslo, said by phone Aug. 27. “These shipments tell me that there are very good times ahead for product-tanker owners,” he said, referring to ships that carry refined fuels like gasoline and diesel.
Scorpio Tankers Inc. and Torm are the biggest and second- biggest publicly traded owners of product tankers worldwide, according to data from Clarkson Plc, the world’s largest shipbroker.
Rates for hauling these fuels are surging. The sort of long-range tankers being used to sail around Africa will earn $28,375 a day this year, according to a survey of shipping specialists compiled by Bloomberg. That’s the most since at least 2010 and 19 percent more than anticipated at the end of last year.
The Baltic Clean Tanker Index, an overall measure of the cost of moving gasoline, diesel and other fuels, averaged 695 points since the start of January, the highest in four years, data from the Baltic Exchange in London show.
The journey around Africa only works occasionally, when fuel prices are low and trading conditions are right. The normal route remains through the Suez Canal, which is what most vessels are doing now, according to lists of charters and tracking compiled by Bloomberg.
Each long-range tanker is designed to deliver about 80,000 metric tons of cargo.
Extended journeys help owners because they keep ships employed for longer, effectively cutting fleet supply. As well as lower fuel prices, traders also like the option of selling cargoes en route, to West Africa, for example, where demand is rising, and to other regions including Latin America, according to Erik Broekhuizen, the head of tanker research and consulting at Poten & Partners Inc. in New York.
The trend to sail around Africa could intensify if the price slides to new lows, reducing fuel costs further and as more export refineries come on stream, in particular in the Middle East and countries like India, Broekhuizen said. That would increase demand for long-range product carriers.
A widening of the contango– where a near-term oversupply makes gasoline and other products cheaper today than in future months — could also spur demand.
“Low fuel prices make the longer route around the Cape increasingly competitive relative to the Suez Canal,” Broekhuizen said. “Another advantage of taking the longer route is that it gives traders more options of where to sell their cargoes.”
–With assistance from Naomi Christie in London.
©2015 Bloomberg News