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Crude-Tanker Stocks Plunge As Rates Hit Record Highs

Scorpio

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#1
NOTE THE FOLLOWING IS FROM MARCH 16

Crude-Tanker Stocks Plunge As Rates Hit Record Highs

FreightWaves
BenzingaMarch 16, 2020

It is the best of times; it is the worst of times. Just as spot freight rates for supertankers have reached epic new heights, crude-tanker stocks are plummeting.
Rates for very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude oil) have in some cases topped $300,000 per day, driven by demand from Saudi oil shipping company Bahri.
"Although we are certainly at very high levels, the market could continue to go higher in the short term," asserted Frode Mørkedal, managing director of research at Clarksons Platou Securities. He believes the current VLCC market is "much stronger" than the market in October 2019, when rates previously spiked.
Some analysts believe publicly listed VLCC owners are an ideal hedge and safe haven during the coronavirus-induced stock-market crash. Alas, they were not a haven Monday, at the very time record-setting VLCC employment contracts were finalized.
Shares of Frontline (NYSE: FRO) and International Seaways (NYSE: INSW) closed down 17% on the day, with Euronav (EURN) falling 14% and DHT (NYSE: DHT) down 12%.
Investors are "throwing out the baby with the bath water," Jefferies analyst Randy Giveans told FreightWaves. "Either investors are selling anything energy, don't believe the Saudi/Russia oil war will last long, or that global demand will remain very weak in the coming quarters, if not years, and that inventory building will be quickly replaced by inventory stocking.
"We disagree with what the market is doing today," said Giveans, who pointed out that "most of these tanker companies could earn more in EBITDA [earnings before interest, taxation, depreciation and amortization] in the month of April than in all of 2018."
Concerns Over Demand And US Production
Longer-term issues for crude-tanker rates were raised on Monday by Stifel analyst Ben Nolan, speaking during the Virtual Investor Forum hosted by J Mintzmyer on Value Investor's Edge via Seeking Alpha.
"Right now, you couldn't ask for a better layout for crude tankers," Nolan said. "Tanker companies are making money hand over fist, but it's being driven by the supply side — the supply of oil and the supply of ships. It's not indicative of underlying demand, which is a problem.
"We were cautious on oil demand even prior to coronavirus," he continued. "Global demand was softening a lot faster than people had thought and this [outbreak] is expediting that process. There are estimates that oil demand could be down by about 10 million barrels per day [due to coronavirus]. That's 10% of demand. That's stunning.
"When all the oil-supply and ship-supply elements are worked through, what are we left with? So, we're very positive on the tanker market in the immediate term, but you definitely want to keep your finger on the trigger in terms of selling these stocks because when it rolls over, it could potentially roll over really hard."
Another risk going forward: A significant portion of incremental tanker demand growth relates to longer voyage distances as the U.S. exports more crude oil to Asia. Vessel demand is not measured in tons, it's measured in "ton-miles" — volume multiplied by distance.
The collapse in crude-oil pricing could put a lid on U.S. production and exports, Nolan believes. "Already companies have begun to reduce their capex [capital expenditures]. These wells deplete quickly, so if you're not constantly drilling and spending money, the decline in U.S. production could happen fast. Our internal view is that we will reach ‘peak oil' [production] for the U.S. in 2021. But it's certainly possible [due to the price drop] that it could be this year. And after that happens, we're not expecting any incremental ton-miles." [crude tanker demand from U.S.-Asia exports]."
Disparity Between "Last Done" And Average Earnings
There are other caveats to the new $300,000-per-day VLCC rate record, as well.
When fixtures (charters) are first reported, they are "on subjects" or "on subs," meaning that an agreement has yet to be reached; it's more of an option. When the contract is finalized, the deal is considered "fully fixed."
The extremely high rates reported on subs are driving much of the excitement around VLCC rates. As of Monday, data from the Tankers International (TI) commercial pool was showing a rising number of deals on subs failing to be converted to finalized fixtures. TI was reporting six fixture failures, up from one on Friday.

Meanwhile, even if a day rate of $300,000 is finalized for a VLCC, very few other VLCCs will achieve that rate.

A portion of the fleet is on long-term time charters and will therefore miss out on some or all of a rate spike. And most of the VLCCs not tied up on time charters are not available to bid on today's spot contracts because they are on the fronthaul or the backhaul of spot contracts signed before rates skyrocketed (a round-trip VLCC voyage can take three months). A month ago, VLCC rates were just over $20,000 per day.

Even for owners whose ships do happen to be in position to lock in those rates, there is a major "lag effect" before the numbers pass through to quarterly results. Today's rates will be booked in the second quarter, which won't be publicly reported for another four to five months.

More FreightWaves/American Shipper articles by Greg Miller

Image Sourced from Pixabay

https://finance.yahoo.com/news/crude-tanker-stocks-plunge-rates-222442186.html
 

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NOTE, THE FOLLOWING IS FROM MARCH 16



VLCC ends week with skyrocket spot rates on ‘dramatic fixing’

Lee Hong Liang | Mar 16, 2020

The tanker shipping market has enjoyed an unexpectedly strong week, with a dramatic fixing binge by Saudi Arabia’s Bahri pushing up rates to around $250,000 a day.

Last Monday, Bahri swoop on 18 spot VLCCs in the market and added another seven later in the week, putting the week’s total at 25, according to data from Poten and Partners.
“This level of activity is unprecedented. Bahri is one of the largest VLCC owners in the world but it rarely enters the spot market to charter third party tonnage. With 41 owned VLCCs, Bahri usually does not need to,” Poten and Partners stated.
Related: An awful energy day…unless you are a tanker owner
“At the moment, it is likely that the number of vessels that Bahri needs for Saudi Arabia’s exports exceeds the tonnage that they have available, hence their decisive action in the spot market,” the analyst said.
Saudi Arabia has significantly lowered its oil prices and announced their intention to increase production and exports, leading to a collapse in global oil prices with WTI declining from $45.90 per barrel on 5 March to present level of around $31 per barrel.
“The events also ignited interest in floating storage and tanker markets started to percolate,” Poten and Partners wrote. “Within a little more than a week, VLCC rates on the benchmark AG-Far East route went from $30,000 a day to $210,000 a day, a 600% increase.”
Shipbroker Gibson said in its latest weekly report that “over the week time charter equivalents have rocketed from around $30,000 per day to $250,000 per day with the period upon rates as high as WS 215 for long east runs and WS 400 paid for short move to west coast India.”
In addition to the sheer number of fixtures, the intended destination of the vessels saw none headed to eastern destinations, a clear sign that the Saudis are targeting western clients.
Ten of the 25 VLCCs are destined for the US Gulf, while four are going ‘west’ – most likely Europe. Another 10 VLCCs are fixed to discharge at Ain Sukhna, the entry point of the Sumed pipeline which transports crude oil through Egypt from the Red Sea to the Mediterranean, according to data from Poten and Partners.
In total, last week saw 92 fixtures, up from 56 fixtures in the previous week. The average number of VLCC fixtures per week for 2020 year-to-date is about 50, which is similar to the weekly averages in recent years.
“It is unlikely that this high level of fixing will be maintained in the coming weeks, because global oil demand remains still quite dire,” Poten and Partners said.
Gibson observed that signs of China’s economic activity is re-emerging, which may come at a time when western countries enter a lock-down and short-term falling demand amid the coronavirus outbreak. But all these could change if Saudi Arabia and Russia come to a compromise over production levels and various governmental measures prove successful against the coronavirus.

Copyright © 2020. All rights reserved. Seatrade, a trading name of Informa Markets (UK) Limited.


https://www.seatrade-maritime.com/tankers/vlcc-ends-week-skyrocket-spot-rates-dramatic-fixing
 

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#3
NOW FROM MARCH 30


Oil tanker rates double as demand for storage and transport resurfaces

By Roslan Khasawneh
ReutersMarch 30, 2020

FILE PHOTO: An oil tanker sits anchored off the Fos-Lavera oil hub near Marseille
By Roslan Khasawneh

SINGAPORE (Reuters) - Supertanker freight rates are on the rise for a second time this month as producers, refiners and traders scramble to secure ships to transport crude or store a fast-growing global glut of oil, industry sources said.

Freight rates for very large crude-oil carriers (VLCC) along the Middle East Gulf to China route were assessed at about $180,000 a day on Monday, up from some $125,000 on Friday and a weekly low of about $90,000 a day on Wednesday, according to several ship broking sources.

"Its difficult to say whether or not the rates will be sustained, or at what levels, but generally looking at Saudi's export plans for the coming months at more than 10 million barrels per day (bpd) - as well as the demand for floating storage - then you can expect freight rates to remain strong," said Anoop Singh, head of tanker research in Asia at Braemar ACM Shipbroking.

"But how strong is the question," said Singh, adding that forward prices for VLCCs for the second quarter were trading at some $170,000 a day for the Middle East to China route.



GRAPHIC: Oil tanker freight rates jump again https://fingfx.thomsonreuters.com/gfx/ce/xklpykgqpgd/VLCCRatesMar302020.png



With world demand for oil forecast to plunge 15 million to 20 million bpd, a 20% drop from last year, traders are increasingly being forced to park crude in storage to take advantage of a record gap between spot and future prices.

The contango spread between May and November Brent crude futures has hit a record $13.45 a barrel while the six-month spread for U.S. crude widened to minus $12.85 a barrel, the biggest discount since February 2009.

In a contango market, prices in the short term are lower than in future months, which encourages traders to store oil for sales in the future at a higher price.

"Almost all the spot (tanker) deals right now have floating storage tied into them - that's the only way to make money. You're not going to make money trading the cargo now," said Ashok Sharma, managing director of shipbroker BRS Baxi in Singapore.

While onshore storage space is typically cheaper than floating storage, traders are increasingly seeking to store oil on tankers as onshore space becomes increasingly scarce.

VLCC time charter rates for floating storage jumped to as much as $120,000 per day by Monday, up from about $40,000 per day at the start of the month, the shipping sources said.

Even at those rates, by storing oil onboard VLCCs for six months, traders could lock in as much as $7 million to $8 million in profit at current market prices, the sources said.

This is the second time this month freight rates have spiked after a surge in demand to ship the flood of crude oil unleashed by a battle for market share between Saudi Arabia and Russia.



(Reporting by Roslan Khasawneh; Editing by David Clarke)


https://finance.yahoo.com/news/oil-tanker-rates-double-demand-092320742.html
 

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These stocks are certainly not for the faint of heart.