Some diesel tankers making their way to northwest Europe from Asia-Pacific are travelling around the Cape of Good Hope, instead of the typical route via Suez, to take advantage of the steepest contango structure in Ice gasoil futures in more than a decade.
The Long Range 2 (LR2) tanker Polar Bright will travel around the Cape of Good Hope on its way to Europe from Sikka on India's west coast, according to market participants. China's Unipec booked the tanker to load 90,000t of diesel, according to fixture reports. It departed on 18 April but its southerly detour means it is not expected to arrive in Rotterdam until 25 May, according to oil analytics firm Vortexa.
Market participants say the unusual route is designed to exploit the steep contango structure in European gasoil derivatives. The front-month Ice gasoil contract closed at a $23/t discount to the second-month on 24 April, the steepest contango since 2009. This means traders may be able to profit more by selling futures or swaps while holding physical diesel, than by selling the physical product at an earlier date.
By spending longer at sea between loading and discharging, the tanker effectively provides the charterer with floating storage for the diesel in the meantime. Floating storage has been in high demand in recent weeks, as the contango structure and the low level of demand have encouraged traders to fill land-based storage close to capacity.
The LR2 Ocean Taipan is following the same route as the Polar Bright. It will arrive in Rotterdam on 16 May having loaded ship-to-ship in southeast Asia on 4 April, according to Vortexa. Likewise, the STI Gallantry loaded in China and Malaysia in March but will not arrive in Rotterdam until 1 May for the same reason.
The last tankers to travel around the Cape of Good Hope to bring diesel to Europe from east of Suez loaded in September 2019, according to Vortexa.
