As much as 1.2 million metric tons, or 8.8 million barrels, of Asian gasoil is in floating storage off the coast of Singapore, as traders wait to see whether demand returns to the region before sending cargoes to Europe, shipbrokers based in Europe and Singapore said.

However, Asia remains oversupplied with ultra-low-sulfur diesel, and with no strong regional demand, the gasoil must be exported, a Singapore-based trader said.

Although five new tankers have joined the fleet over the past few months, the amount of gasoil stored off Singapore has remained relatively stable, as cargoes have also come out of storage or have been repositioned offshore of Europe or the Middle East, the shipbrokers say.

Mercuria Energy Group's oil tanker Emerald Isle, which has been storing 60,000 tons of gasoil in the region since late June, headed out at the end of September and is projected to be in Fujairah around Oct. 10, according to two Singapore-based shipbrokers.

Large-Range-2 tankers Kamari and Silvaplana have also moved and are now off Malta, while the vessels Ghibli and New Confidence have relocated to Europe.

Europe continues to attract tankers loaded with Asian gasoil because of the higher premium - or contango - of forward-month contracts to prompt prices of ICE gasoil futures. The October-December contango for ICE gasoil futures was at $14.50 a ton, or about $1.94 a barrel, compared with a contango for October-December Asian gasoil swaps recently assessed by brokers at $1.50 a barrel.

Although the European contango isn't wide enough at the moment to profit from short-term storage, holding onto stockpiles for a few months might make sense, a second trader said.

The latest additions to the fleet include vessels on time charter by investment banks such as Morgan Stanley (MS) and Barclays Capital (BARC.LN), which hope to profit from the trade by taking advantage of low freight rates and an influx of newly built ships available at discounts.

Although Morgan Stanley is likely to ship its cargoes to Europe, where the bank has a strong trading presence, Barclays will probably keep its supertanker in Asia, a third trader said.

 
Latest Floating-Storage Ships 
 
===================================================== 
VESSEL               VOLUME   SINCE    CHARTERER 
                     (TONS) 
====================================================== 
Zenovia Lady         80,000   Sept. 8  Morgan Stanley 
Yasa Polaris        130,000   Aug. 25  Morgan Stanley 
Lu San              260,000   Aug. 15  Barclays 
Stresa               90,000   July 1   Mabanaft 
Uacc Ibn Al Haitham  55,000   June 5   Mabanaft 
 
Known Floating-Storage Ships Still Off Singapore 
================================================= 
VESSEL              VOLUME    SINCE     CHARTERER 
                    (TONS) 
================================================= 
Laura                90,000   July 29   Mercuria 
Stealth Chios        80,000   June 14   Vitol 
NS Asia              90,000   July 21   Trafigura 
Trochus              90,000   June 3    Shell 
Delta Ios           130,000   July 1    Vitol 
Eagle Milwaukee      80,000   Feb. 15   Unknown

-By Wayne Ma, Dow Jones Newswires; +65 6415 4065; wayne.ma@dowjones.com