Crude tankers more than shrug off virus

Author Nicholas Watt, Editor

As the spreading coronavirus pandemic leaves stock prices sagging, airline demand dragging and supply chains broken, one market has had the good fortune of benefiting from some of the virus’s effects: crude oil shipping.

The crude tanker market, after experiencing a steady fundamentals-driven decline in January and February, reversed course after Saudi Arabia’s surprise announcement this week that it would raise its crude output following Russia’s failure to agree to Opec’s joint production-cut plan to support the virus-hit oil market.

“It is an indisputable fact that a low/decreasing oil price is good for the tanker market and good for our ships,” crude oil tanker operator Nordic American Tankers said. 

Oil prices had already fallen earlier this month, partially a result of the outbreak weighing on the global economy. 

VLCC-rates

Source: Argus Freight

The key Mideast Gulf to Asia-Pacific very large crude carrier (VLCC) rate since 9 March has climbed by 213pc to Worldscale (WS) 180, or $42.21/t, as a frenzy of bookings cleared out available tanker supply. 

Falling crude prices are spurring importers to increase their cargo intake. Six European refiners are scheduled to receive April-loading Saudi crude between 20-200pc above contractual allocations. US refiners will be receiving a flotilla of tankers full of Middle Eastern oil. In a rare move, Saudi state-controlled shipping company Bahri this week chartered in at least 16 VLCCs operated by other shipping firms, with 10 of those tankers scheduled to take Saudi cargoes to the US. 

The drop in prompt oil prices has also steepened the crude market’s current contango structure enough to incentivize traders to book at least four VLCCs for floating storage of up to six months.  

Tightening VLCC fundamentals have raised rates in other key crude oil loading regions, such as west Africa. The US Gulf coast has risen as global tanker supply continues to tighten. Since 6 March, the west Africa-China VLCC rate is up by 187pc to WS165, or $60.75/t, and the US Gulf coast-China VLCC rate is up by 107pc to $15mn, or $55.56/t. 

Investment bank Jefferies said gains in VLCC rates in the longer term are likely to be similar to those seen in 2014-16, which was a period of sustained oil price weakness.  

The Argus Freight service provides daily comprehensive global shipping news and cost data for both dirty and clean crude oil and petroleum product tanker routes. Click here for a list of freight markets covered.