Category: Oil

Contango on the Horizon? Navigating the Turning Tide in Oil Storage Economics

By Lars van Wageningen, Research & Consultancy Manager

May 2025 was marked by significant volatility in global oil markets, with Brent crude prices flirting with multi-year lows, forward curves flattening into contango, and trade flow disruptions affecting key hubs. While backwardation still defines the prompt structure, a deeper contango emerges beyond Q4 2025—a signal of shifting market fundamentals. For tank terminal operators, this environment demands strategic recalibration toward future storage plays, flexible infrastructure, and adaptive commercial models.

1. Price Weakness and Forward Curve Flattening

Brent crude hovered between $62.13 and $64.53/bbl throughout May, pressured by ongoing geopolitical uncertainty, OPEC+ supply increases, and a fragile macroeconomic outlook. On May 2, Brent dropped below $60/bbl, the lowest in four years, before modest rebounds later in the month.

Key trend: While spot prices stayed depressed, forward spreads gradually narrowed, and by mid May, Brent calendar spreads showed contango developing from 2026 onwards

Strategic takeaway: Terminal professionals should prepare for a shift from prompt-driven demand to future-oriented storage inquiries. This is a critical time to reassess contract structures and evaluate potential tank reconfiguration to align with longer-dated storage demand.

2. Storage Economics Still Underwater—But Signs of a Turn

Despite forward-looking contango, break-even storage rates remained negative across all products in May, especially gasoline and gasoil:

  • RBOB M1-M6: ranged from -€9.33 to -€10.07

  • Gasoil M1-M6: ranged from -€3.09 to -€3.52

  • Jet kerosene M1-M6: consistently around -€3.70 to -€3.91

The charts on page 3 across all reports confirm persistently unprofitable contango storage throughout May, despite some improvement in longer-term spreads.

Strategic takeaway: Tank terminals should remain focused on throughput services while preparing operationally for a potential contango play in 2026. Scenario planning for price curve shifts is no longer optional—it is essential.

3. Product Cracks Reveal Divergent Market Dynamics

Product crack spreads throughout May were a mixed bag:

  • Gasoline and HSFO saw support from tighting of the market due to export opportunities (gasoline) and and slowdown in imports (HSFO).

  • Middle distillates like diesel and jet fuel showed bearish tendencies as imports into Europe increased, but this can get under pressure due to a closed arb and slowdown in imports for June.

  • Cracking margins hovered between $8.03 and $11.62/bbl, with hydroskimming margins remaining negative throughout

According to page 9 commentary in the May 16 and May 30 reports, light ends benefitted from ARA exports to the US and Africa, while middle distillates suffered from inventory overhangs and closed arbs from Asia.

Strategic takeaway: As margins vary across the barrel, tank terminals must enhance product flexibility—supporting blending, switching, and short-term repurposing between distillates and gasoline pools.

4. Emerging Trade Flow Shifts and Demand Signals

May trade flow insights reveal significant structural adjustments:

  • Fuel oil: Increased regional demand for ULSFO in the Med and summer power generation demand in the Middle East and Egypt supported prices, yet arbs to Asia remained shut due to high transport costs and saturated markets.

  • Middle distillates: US distillate stocks rebounded but remain low, closing some export opportunities to Europe, while demand up the Rhine remained steady. Europe continued importing from Middle East and India to compensate for local refinery outages.

  • Gasoline: Export routes from ARA to North America and West Africa remained active, although at lower levels compared to previous years. Stocks in ARA dropped in early May but rebounded due to incoming cargoes and refining restarts.

Strategic takeaway: Trade imbalances are increasingly regional and seasonal, making it vital for tank terminals to adopt flexible scheduling and logistics management systems to match product flow shifts.

5. Market Sentiment Turning, but Not Yet Translated to Tank Economics

Forward curve outlooks across May consistently echoed a growing belief in storage demand growth from 2026. Spot backwardation remained intact but eroded slightly week-over-week.

  • The May 30 outlook noted the market was absorbing a 2.2mbpd surplus for now, but anticipated stock builds may trigger deeper contango later.

  • Calendar Spread Options (CSOs) for WTI crude Nov/Dec 2025 surged to $1.60–$2.00/cbm, reflecting early hedging and speculative positioning.

Strategic takeaway: Commercial teams at tank terminals must start engaging counterparties today for forward storage deals, especially with counterparties active in the CSO and futures market.

Conclusion: Ready for the Pivot

While the storage economics of May 2025 remain unfavorable, contango is creeping back—not yet at the front end, but visibly on the horizon. For tank terminals, this is the moment to:

  • Invest in future-proofing infrastructure

  • Increase contractual agility

  • Prioritize data-driven positioning strategies

The market is poised to pivot. Terminals that act on early signals—rather than waiting for headlines—will own the advantage in the next cycle.

Covid-19 and the impact on the Market Outlook and Oil terminals

Even though the Covid-19 pandemic is still in full swing, it is safe to say that the corona-virus has had a profound impact on nearly every aspect of our daily lives. Besides the more visible effects on public health, society, and transportation, Covid-19 also sent a shockwave through the global economy. 

Even though the Covid-19 pandemic is still in full swing, it is safe to say that the corona-virus has had a profound impact on nearly every aspect of our daily lives. Besides the more visible effects on public health, society, and transportation, Covid-19 also sent a shockwave through the global economy. 

This economic shockwave also had its effects on tank terminals: As soon as the true scope of the Covid-19 pandemic became apparent, the oil market shifted from a backwardated market into a deep contango. Needless to say, this contango immediately led to a significant increase in demand for tank storage. Currently, the commercial occupancy rates at oil tank terminals are very high, and as a result, tank storage rates have increased by 20-30%.

This presents a somewhat unique situation for the tank terminal market. On the one hand, high occupancy rates and increased tank storage rates have a very positive impact on the short-term profitability of oil terminals. However, the consumption of oil products has seen a sharp decline and will takes years to recover fully.

What will this mean for the tank terminal market? At Insights Global, we continuously calibrate our Advanced Tank Terminal Market Model against shifts in the market. Our algorithms take into account macroeconomic trends like oil prices, taxes, trade costs, and interest costs, and (petro)chemical factors like trade flows, logistics, and storage rates. Based on the latest economic developments, we have also incorporated the Corona effect in our forecasting models.

Even though the V-shaped consumption curve (sharp decline followed by a sharp increase) for oil products seems already behind us, we expect it will take five years for consumption levels to normalize fully. Jet-kero consumption is hit especially hard by the Corona-crisis, with an initial reduction of up to 95%. This slow recovery is not only caused by the impending economic recession, but also by the change of habits like working from home and replacing in-person meeting by online meetings.

While the current focus is – understandingly so – on the impact of Covid-19 on the oil market, other essential factors like the electrification of road transport, reverse dieselization of European passenger cars, and IMO 2020 regulation for bunker fuels will also play a key role in the tank terminal market. Naturally, the impact of these events is also incorporated in our Advanced Tank Terminal Market Model.

Having access to accurate, up-to-date oil storage rates is crucial to make the right business decisions.

With our Global Oil Storage Rate Report, you’ll gain access to the single and only authoritative source of storage rate information available worldwide. It will provide you with transparency on price levels in global tank storage markets regularly, so you are always in the know and can set the right ask and bid prices for your storage.

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