Oil tanker owners cruise to bumper quarter as rates surge

Oil tanker owners are ready for one of their “biggest quarters in history” as the huge glut of supplies caused by the coronavirus crisis triggers soaring charter rates for ships capable of carrying more of 2 million barrels of oil.

According to Clarksons Platou Securities, the daily cost of hiring a very large crude carrier has more than doubled in the past week to a record $ 229,000 per day. Crude prices have fallen by two-thirds this year to less than $ 25 a barrel as demand plummets, refiners and energy traders scramble to secure ships to transport or store the product on the water.

Rental rates for a six-month VLCC have also increased with a 12-year-old ship, with a market value of $ 44 million, booked Monday by a European oil major for $ 120,000 a day, more than 20 million dollars in total, according to industry sources.

The historic collapse in demand for crude was sparked by the coronavirus crisis and Saudi Arabia’s decision to start a price war with rival producers and to flood the crude market.

Standard Chartered estimates that supply could exceed demand by nearly 22 million barrels per day in April, 19.5 million barrels per day in May and 13.7 million barrels per day in June, which would exhaust available storage capacity over the next six weeks.

For operators such as Frontline, the Norwegian oil group controlled by billionaire John Fredriksen, Euronav and International Seaways, the collapse in demand for oil could generate profits and windfall profits for shareholders.

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“The second quarter of 2020 now seems to be one of the biggest quarters in history for large crude oil carriers, and even if there will be a hangover at some point, this holiday is worth it” said Eirik Haavaldsen, research manager. at Pareto Securities.

Frontline shares, listed in New York, rose about 22% in March, while Euronav, which released its annual results on Tuesday, rose about 24%. International shipping has gained about 17%.

Large energy traders are now rushing to charter vessels to store the oil and take advantage of a market structure called “contango”, whereby future oil supplies are more expensive than those for immediate delivery.

According to Clarksons, Unipec in China reserved 10 ships on Monday, while the price difference between Brent crude oil for delivery now and delivery in six months has increased to almost $ 14, exceeding the widest gap reached in the last financial crisis.

By buying oil at a low price now and selling it at a higher price in the future market, traders can make money as long as the difference is greater than the cost of storage. During the last oil crash half a decade ago, traders made a billion dollar profit from such exchanges.

“Floating storage is now taking place at an unprecedented rate,” said Haavaldsen. He expects 150 VLCCs to exit the market for six to 12 months, earning approximately $ 95,000 and $ 65,000 per day in the second quarter and third quarter, respectively.

The longer term prospects are less certain. Euronav said On Tuesday, he was “aware” that a large amount of the oil currently produced and transported was being stored for use at a later date.

“The constitution of these stocks could in the future have an impact on the demand of the oil transport sector and in particular of the oil tanker markets”, he warned in his press release of annual results.

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