December confirmed a clear shift in market direction. Where earlier months were dominated by tight balances and strong backwardation, year-end trading increasingly reflected oversupply expectations for 2026, easing supply concerns, and softening product demand. Crude prices declined further, product cracks weakened across most products, and forward curves, particularly for fuel oil, moved into a stronger contango. For tank terminal operators, December marked the transition from throughput-driven tightness toward a market preparing for higher inventories and potential storage demand in the year ahead.
1. Crude Markets: Prices Slide as 2026 Oversupply Dominates Sentiment
Brent crude fell further in December, declining from around $63/barrel to near $61/barrel, as markets focused on weakening demand expectations. The IEA revised its 2026 outlook lower, but even with reduced projections, markets remain concerned about the system’s ability to absorb surplus volumes without significant stock builds.
Key drivers shaping crude sentiment included:
- Expectations of a Russia–Ukraine ceasefire, which could restore some Russian supply.
- Saudi price cuts for Asian customers signaling competitive pressure and surplus availability.
- Rising US and Chinese strategic stock purchases, temporarily absorbing excess barrels.
Despite ongoing backwardation in the Brent curve, spreads narrowed notably, and longer-dated contracts increasingly price in contango from late 2026 onwards.
Takeaway: Crude markets are no longer driven by immediate scarcity but by forward-looking oversupply risk, setting the stage for structurally higher inventories.
2. Forward Curves: Fuel Oil Leads the Shift Toward Contango
Forward curve dynamics in December diverged clearly by product group:
- Middle distillates remained backwardated, but front-end prices saw a small increase due to rising uncertainty in oil markets.
- Gasoline (RBOB) stayed firmly in contango, supported by seasonal stock builds and expectations of higher US prices in early 2026.
- Fuel oil showed the most pronounced structural change, with a steep drop in HSFO prices, and LSFO curves forming a clear contango, albeit still too shallow to fully cover storage costs.
The emergence of contango in fuel oil reflects oversupplied spot markets, and soft bunker demand, and growing inventories across some major hubs.
Takeaway: Fuel oil is the first product signaling a structural shift in market balance, with implications for tank utilization heading into 2026.
3. Storage Economics: Negative Overall, but Improving at the Margin
Break-even (BE) storage rates remained negative for most products, confirming that storage economics were still unattractive in December. However, trends point to gradual improvement, especially in fuel oil and gasoline structures. Key BE indications included:
- LS Gasoil and Jet: deeply negative, reflecting persistent backwardation.
- Gasoline: mixed signals, with short-term positive BE rates but longer tenors still negative.
- Fuel oil (LSFO/HSFO): BE rates near zero, and a small improvement for the high-sulfur grades.
Negative BE rates mean future prices still do not compensate for storage costs, but December showed the least punitive storage environment since summer.
Takeaway: While storage plays remain largely uneconomic, December suggests the market is moving closer to a turning point where selective products may soon justify longer tank occupancy.
4. Product Cracks: Broad Weakness as Supply Normalizes
Product crack spreads weakened further in December:
- Gasoil and diesel cracks fell sharply as supplies on both sides of the Atlantic increased
- Jet fuel margins declined on the week
- Gasoline cracks softened and remained below the gasoil and diesel cracks
- Fuel oil cracks dropped further, supported by lower fuel oil prices
Refinery margins in Northwest Europe deteriorated, with Brent cracking margins falling toward $8–9/barrel, while hydroskimming margins dropped to multi-year lows.
Takeaway: Refinery economics no longer support aggressive runs, pointing to a calmer throughput environment and fewer sudden volume spikes for terminals.
5. Global Stocks: Inventories Begin to Build
Global stock data for December confirms the early stages of inventory rebuilding:
- UGlobal stock data for December confirms the early stages of inventory rebuilding:
- ARA: light ends stabilized, middle distillates showed slight draws, heavy stocks edged higher
- Singapore: heavy product stocks decreased, while the middle and light segments increased
- Fujairah: heavy ends continued to build, while middle distillates stabilized
The regional divergence highlights that oversupply pressures are emerging unevenly, but the overall direction is upward.
Takeaway: Rising stocks reinforce the shift away from scarcity-driven logistics toward inventory management and storage optimization.
Conclusion
December closed the year with a decisive change in market narrative. Falling crude prices, weakening product cracks, and narrowing backwardation all point toward a market preparing for oversupply rather than reacting to shortage. While storage economics remain largely negative, the improvement seen in fuel oil and gasoline structures suggests that the foundations for renewed storage demand are forming. For tank terminals, the focus remains on efficient throughput and operational flexibility in the near term, but December’s signals indicate that 2026 may bring a return of longer-term inventory plays. Terminals that are ready to adapt from high-turnover logistics to inventory-driven utilization will be best positioned as the market cycle turns.
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