Very large crude carrier (VLCC) owners are holding off scrapping their older ships amid lingering demand for floating storage and the possibility of a tanker market rebound later this year, according to shipbroker and research company Intermodal.
"VLCC owners are likely to hold on to their assets until floating storage unwinds completely," Intermodal director Tamara Apostolou told Argus.
Of the 818 VLCCs that comprise the global fleet, 59 have been idling for at least seven days, according to Vortexa.
Whether older VLCCs being used for floating storage will be scrapped depends on market conditions and shipowners' expectations at the time the ships are emptied, Intermodal said.
More than 60pc of tankers being used for floating storage are older than 15 years old, Apostolou said. Oil tankers are usually retired from the trading fleet at around 20 years old.
Earnings for VLCC owners have fallen to the lowest in decades. Time charter equivalent rates are at the lowest in 25 years because of a surplus of tonnage and lagging demand.
The rate for a US Gulf coast-China VLCC voyage is at $17.22/metric tonne (t), down by about 68pc from this time last year, when the onset of the Covid-19 pandemic and the Russia-Saudi Arabia oil price war spurred a surge in floating storage demand.
Shipowners are optimistic about the freight outlook, so rates need to be lower for a longer period to spur increased vessel scrapping, according to multiple shipbrokers.
Crude tanker demolitions are down compared with the capacity that left the market at the end of 2020. Some shipowners are opting to part with their tankers by selling them into the second-hand market.
Owners of larger crude tankers, such as VLCCs, benefited from soaring prices last year amid exceptional demand for floating storage, so they they may be able to sustain adverse market conditions, Intermodal said. But shipowners also expect the market will improve should Opec+ reverse oil supply cuts in the coming months, it said.
Opec+ members earlier this month agreed to keep production quotas largely unchanged for another month, further delaying a potential recovery in the tanker market.
"The recovery will happen when oil inventories will have been drawn down sufficiently so that a new restocking cycle begins," Apostolou said.
Intermodal expects a cyclical trough for tankers by the third quarter. Recovery will depending on Opec+ oil production policy as well as crude oil demand from China, India and the US, among other factors, Apostolou said.
