Supply outstrips demand as jet fuel surplus causes problem in Europe

Jet fuel and diesel stocks have been continually building in Europe while refineries worldwide have been operating at near-maximum capacity as a result of a rare run of strong profit margins. As an example of the growing problem, the 90,000 ton tanker Mindoro is at anchor off the southern England coast ready to offload part of its payload, but it will then return to sea as there is no buyer currently lined up for the remaining cargo. Off the coast of Holland the 90,000 ton STI Lombard has been moored up for over a week while a buyer is sought for the cargo brought over from South Korea.
European refineries have not been producing sufficient aviation fuel or diesel to meet demand, and as a consequence the storage facilities have proved useful for major producers. Currently SK Energy produces 840,000 barrels per day from the Ulsan refinery in South Korea, Reliance produces 660,000 barrels per day at their refinery in Jamnager, India, and 400,000 barrels per day are produced at the Satorp refinery in Saudi Arabia. However storage tank levels are currently at a record high and advanced sales are proving hard to come by owing to reduced margins.
As a consequence suppliers are now sailing along longer routes to delay the arrival of their tankers – many from Asia choosing to sail round Africa as opposed to going through the Suez Canal, thus extending voyage time to 45 days instead of the normal 35. This is akin to ‘floating storage’ but without the associated long-term cost commitment. The situation doesn’t look like easing up either as approximately 2.4 million tons of jet fuel are currently booked to arrival in Europe from Asia and the Middle East in October. This figure is compared to an average of 1.8 million tons in recent months, which already exceeds demand, despite figures from the International Energy Agency showing that jet fuel demand across the developed world grew between 4-5% in the first two quarters of 2015.