While we have previously observed the massive glut of oil product in the US, which has led to such arcane developments as a “parking lot” of oil tankers outside of Galveston, TX…

… or ships loaded to the brim with crude making U-turns in the middle of the Atlantic Ocean, taking advantage of the supercontango while unable to find buyers…

… we can now say that things in Europe are just as bad, if not worse. According to the latest “This week in petroleum” blog post by the EIA, European distillate oversupply has results in floating storage and shipping changes, such as tankers taking the long route around Africa (40 days vs 20 days), because they are unable to find a buyer and hoping that demand will spike while ships are at sea. So far demand continues to plunge even as more and more supply comes online.

From the EIA:

Europe, like the U.S. East Coast, is experiencing a relatively warm
winter. In addition to the resulting weak winter heating demand, high
refinery runs in Europe and increased imports have kept distillate
inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far
above normal. Higher inventories have pushed distillate futures prices
in the ARA into a steep contango (meaning prices for delivery dates
further in the future are higher than for near-month delivery). As a
result, inventories are being held in floating storage and imported
cargos are being diverted to longer voyages.

Increased European refinery runs [have] contributing to
high distillate inventories in the ARA region. As demand for gasoline in
the United States and in West Africa increased last summer and fall, higher gasoline crack spreads
led to increased European refinery runs. The increased refinery runs
yielded distillate, along with the more profitable gasoline.

At the same time, new and traditional sources of distillate have
expanded capacity to supply ultra-low sulfur distillate (ULSD) to
Europe. In Russia, which is a longtime supplier of distillate to Europe,
refineries have been upgraded to produce lower-sulfur distillate fuels
that are widely used in Western Europe, and have increased exports to
Europe. Elsewhere, several new refineries, including those in Saudi
Arabia and India, which are geared toward maximizing ULSD output, have
come online in the past few years, further adding to the supply of
distillate.

These factors — reduced heating demand, increased European refining
runs, and increased imports — have pushed independently held distillate
inventory levels in the ARA to more than 26 million barrels in recent
months, more than 7 million barrels higher than the five-year average
(Figure 2).

The ARA is the delivery point for the Intercontinental Exchange (ICE) gasoil (distillate) futures contract.
Consistently high distillate inventories in the ARA have pushed prices
lower and ICE gasoil futures into a steep contango. The futures spread
between the prompt month ICE gasoil contract and the contract for 12
months forward was $8.90 per barrel contango in January (Figure 3).

Trade press reports indicate that a lack of storage space and a large contango have pushed distillate supplies into floating storage
and encouraged import cargoes to take longer shipping routes. When
contango in the futures contracts become sufficiently large, market
participants can lock in a profit by purchasing distillate supplies on
the spot market, chartering a vessel, and selling a longer-dated futures
contract.  

Trade press report that several vessels in European waters,
such as off the coast of Gibraltar in southern Spain and outside of the
ARA ports, have been booked specifically for distillate floating
storage.

Another tactic employed by market participants is to have
inbound cargoes take longer voyages, which allows more time to find a
buyer, or onshore storage space, and also provides a return from the
higher priced later delivery date.

According to the trade press, many
cargoes from the Middle East and India have diverted around the Cape of
Agulhas, at the southernmost point of Africa, on their way to Europe
rather than passing through the Suez Canal in Egypt. The longer trip
takes 30-40 days instead of the 15-20 day journey through the Suez Canal
(Figure 4).

h/t @GreekFire23