Oil tanker diverted to South Korea from Dalian

Singapore: Petro-China has diverted the very large crude carrier (VLCC) Mogamigawa from fire-hit Dalian port in northeast China to Daesan in South Korea, a shipbroker said Tuesday.

The vessel is the first of six expected to change destinations after pipeline explosions shut the Chinese port and spilled oil into the sea. These diversions of mainly Middle Eastern cargoes were expected to depress crude prices in Asia-Pacific as cargo owners clear backlogs.

Asian benchmark crude prices weakened yesterday. Timespreads for Dubai crude, the difference between swap prices for prompt supplies versus longer-term contracts, widened to a steeper contango, while values of physical cargoes of Oman crude were expected to drop.

Storage capacity

PetroChina and Chinese oil trader Sinochem have five VLCCs heading to Dalian and they are likely to keep the crude onboard in a contango market rather than sell at distressed rates, traders said.

"China has huge storage capacity," a trader said, adding it is probably cheaper to hold the cargoes than sell them.

In a contango market, oil prices are higher in the future than the front month.