LONDON (Reuters) - The levels of diesel, gasoline and heating oil in storage tanks in Europe this week are so high they are causing delivery backlogs and are casting doubt on whether demand for oil to be refined can be sustained.
High levels of oil product stocks have plagued the market for months but the increase seen this week in Europe has come despite a series of factors that should be reducing gasoline and distillate inventories.
French refineries have been hit by strikes over the past few weeks causing shutdowns, it has become unprofitable to ship diesel to Europe from the United States and demand typically climbs in the summer months as holidaymakers take to their cars.
However, PJK International, a Dutch consultancy that tracks independent storage in Amsterdam-Rotterdam-Antwerp (ARA) hub, said gasoil stocks rose by more than 4 percent this week.
Industry monitor Genscape also recorded a nearly 4 percent rise this week, putting all ARA gasoil stocks at 6 million tonnes, or 34 percent above the level this time last year.
Genscape's data put stocks of gasoline, naphtha and blending components at 2.9 million tones, or a 2 percent rise this week.
"There is so much stock in the system," Steve Sawyer, head of refining at FGE Energy, said.
"We had almost 600,000 barrels per day of refining capacity out in France and margins barely moved."
Strikes across France in May crippled its energy sector, shutting half its refineries. At least two, Total's Donges and Gonfreville, were still getting back to full capacity this week, according to Genscape.
Yet storage tanks for diesel and heating oil are already so full in Germany, Europe's largest diesel consumer, that barges looking to discharge their oil product cargoes along the Rhine are being delayed, sources told Reuters.
"Inland inventories are quite full," PJK International analyst Patrick Kulsen said, adding there is "no tankage left".
The sheer volume of gasoline in the system, despite surging demand, has more than halved gasoline refining margins in Europe over the past two weeks to just $5.75 per barrel on Thursday, a fifth of where they stood at the same time last year.
Margins for distillate products, however, held their ground, due to French imports and hot weather across Asia that boosted demand for distillates to be used in power generators.
But rising stocks despite the buying signaled there was likely to be pressure on those margins as well, with some are expecting refineries in Europe to cut back production, as has already been the case in the United States and Asia.
"The strong demand we saw in May and June ... will evaporate," Sawyer said. "I do see margins weakening in Europe, and we could see run cuts."
(Additional reporting by Ahmad Ghaddar; editing by David Clarke)