Traders accelerate oil sales from floating storage to meet Asia demand

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Jan 6 (Reuters) - Traders have accelerated crude oil sales from floating storage in December to meet higher demand in Asia as the region's refineries throttled up for peak winter consumption, trade sources and analysts said.

The drop in excess global stored oil and a sudden decision by world's top exporter Saudi Arabia for extra output cuts in the next two months are expected to keep supplies snug and support prices. read more

"Oil prices are up, and backwardation has widened in expectation of a tighter crude market," said Serena Huang, Asia lead analyst at data analytics firm Vortexa.

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"We could expect to see traders accelerating the sell off of physical barrels that they are holding in storage."

The rollout of COVID-19 vaccines has also lifted hopes for fuel demand recovery in 2021 and flipped Brent's market structure into backwardation, reducing incentives for traders to store oil. Backwardation refers to higher prompt prices versus those in future months.

Global floating storage drew by the most in December last year with the average monthly volume down by 25.8 million barrels versus November, data from analytics firm Vortexa showed.

Floating storage levels fell further at the start of 2021 to about 78 million barrels, the lowest since April when the COVID-19 pandemic ravaged fuel demand, the data showed.

Asia's major buyers, India, China and Japan, imported a high volume of crude in December, data on Refinitiv Eikon showed, as refiners replenish stockpiles while their overall refining output has returned to or even exceeded pre-COVID-19 levels.

"A lot has been sold from storage. Some traders have no floating cargoes left already," said a trader with an Asia refinery.

Asia, which accounts for more than 60% of global crude floating storage, had 60.9 million barrels at the end of December, down 37% from October, according to Vortexa.

Data intelligence firm Kpler said Asia's crude in floating storage was about 64 million barrels last month, which compares with 149 million barrels in late August, but still far from average levels of 20 million barrels seen in 2018-2019.

Vortexa's Huang said floating crude storage was unlikely to return to 2020 highs, as a bumpy oil demand recovery is expected to gather pace this year, which would lift tanker demand and support freight rates, a key cost component for floating storage.

Homayoun Falakshahi, oil and gas analyst at Kpler, said: "The current forward curve isn't incentivising storage, so traders will want to release stored crude."

"Key things to watch will be how quick vaccines are diffused and the length of current lockdowns."

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Reporting by Koustav Samanta and Shu Zhang in Singapore; Editing by Florence Tan and

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