Wednesday, May 13, 2009
Oil stored at sea provides cushion for the tanker market
Wednesday, 13 May 2009
The tanker market is showing signs similar to those observed during the crash of the dry bulk market a few months ago. While the dry bulk is rallying during the past week, tanker owners are witnessing rates free falling, as one more crucial OPEC meeting is nearing. Scheduled for the following Sunday (28th of May), OPEC members will decide on their future supply, with voices being raised once again for a new cut of daily oil production. Although, these voices seem to be the minority within the “cartel's” members, needless to say that another cut could be translated in below-cost rates for tankers, just six months after the market witnessed its best rates since 2004.
Over the past few months, from the beginning of the year the tonnage committed to crude oil storage amid the contango in oil pricing, was the key factor of support to the VLCC sector and to some extent the Suezmax spot markets. According to London broker Gibson, currently at least 55 tankers, 49 of which are VLCCs are storing 102 million barrels of crude oil. In addition, a further 33 vessels, mainly LR2 tankers, are storing 19 million barrels of middle distillates. Crude oil is predominantly stored in the Atlantic basin. Around 42% of the total is stored in the US Gulf, a further 32% in the North Sea and the Mediterranean and finally 16% off West Africa.
Gibson said that “the West African crude market has benefited the most from tighter tonnage availability caused by the storage requirements, with VLCCs generating higher returns compared to their counterparts in the Middle East Gulf. In April, VLCC earnings on the West Africa to the US Gulf trade averaged about $24,000/day higher than the VLCC earnings on the Middle East Gulf to Japan route, where Asian relets provided an additional downward pressure”.
At present, VLCC tonnage tied up in the temporary floating storage represents a substantial 10% of the existing VLCC fleet. Once the contango unwinds and these tankers come back into the spot market, in a currently weak environment this will have a massively negative impact on the freight rates. However, the presently prevailing market sentiment is that an interest to store oil on tankers might last for quite some time, with charterers increasingly demanding options for a longer period of time. The world is awash with oil – in the US alone crude stocks are at their highest level since 1990. If crude held on tankers is released back into the market, there is a strong possibility that it would push down the spot price of oil, widening the contango once again. If this is the case, then the temporary floating storage could become a ‘permanent' feature of the crude tanker market said the broker, bringing some hope among tanker owners.
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