Oil optimism unwinding market's mad dash for storage

LONDON/NEW YORK/SINGAPORE - When the world economy slammed on the brakes last year, there was a rush to store a wave of unwanted crude and products, but rising prices and optimism about demand is spurring a swift unwinding of storage contracts.

The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, closely monitors global inventories, and the rate of drawdowns will be a major factor discussed when it meets on output policy on Thursday. In Europe, the six-month diesel spread reached $8 a tonne on February 19 in its biggest backwardation in 13 months, Refinitiv data showed.

The six-month U.S. diesel futures spread reached 4.35 cents per gallon on Feb. 19, its highest since January 2020. At the start of last March, it stood at minus 3.2 cents. “With less of an incentive to store, we would certainly expect to see a reduction in storage of diesel,” said Kevin Wright, lead analyst for Asia-Pacific at data intelligence firm Kpler, which tracks oil shipments.

Storage in the Middle East is also showing the same destocking trend, brokers said, though at a slower pace.

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