Frontline, Prime Marine, SSY and OilX on tanker markets

Jul 02 2020


An online panel discussion on Apr 30 explored where the tanker market may be headed, organised by Signal Group and with participants from Frontline, SSY, Prime Marine and OilX. Interesting issues are the storage market and the current high demand for product tankers.

Semi Assimakopoulou, VP sales with Signal Group, introduced the discussion by noting than when there are changes in the market, it is often the VLCCs which are first to see price spikes in both directions – up and down. The market is currently “super volatile,” she said.

 

We are taking crude storage capacity to its limits, said Claire Grierson, head of tanker research with shipbroker Simpson Spence and Young.

 

SSY monitors long term storage, which it defines as tankers stationary for more then 3 months.

 

With shorter term storage, it isn’t always obvious if the vessel has been specifically booked for storage, or is just waiting for a berth, she said. In China’s boom times of last decade, it could be common for ships to be waiting for over 7 days to discharge in Chinese ports.

 

Sometimes vessels are being booked on a voyage basis, with an option for storage at the end of the voyage, for up to one month. “So there’s a lot to monitor,” she said.

 

There was a rise in storage during 2019, some of the growth being Iranian vessels cut out of the market by sanctions used for storage, and also stores of very low sulphur fuel oil, in advance of the requirement for ships to use it in January 2020.

 

We are currently seeing the product tanker market hitting record highs, far surpassing any previous peaks, she said.  Refineries have been “exporting because they needed to export.”

 

“We’ve seen a counter seasonal rise in naphtha volumes moving from the Atlantic, because the demand hasn’t been there for gasoline for naphtha blending. The product has been available and it is being shipped East.”

 

Frontline

“What we’ve seen initially is a massive reaction on VLCCs [since they are] most suitable for crude storage,” said Lars Barstad, commercial director, Front Line.

 

There is a delay between when ships are chartered for storage and when they are actually used for storage. “I don’t think we’ve seen the real effect of ships sitting,” he said.

 

“With regards to trading patterns we expect a lot of cuts coming from Middle East Gulf. The volumes which we could call short haul will be hurt - Mid East to Asia.”

 

“On dirty Aframaxes, we’re a bit challenged by Russian cuts, cargo programs in Baltic and North Sea being cut severely. US markets are still good.”

 

“I’m extremely positive to the Afra [max] and LR2 space as it is right now. We will see really interesting things happening for the next quarter on the LR2 segment.”

 

“We’re just in the start of severe refinery run cuts, they’ve been over producing a lot of product – in particular jet. It will create arbitrages, which will make that market quite exciting for the longer term.”

 

It is possible that the same oil molecules are going from East to West, and back to the East, he said.

 

Mr Barstad also noted that some companies appear to be paying for freight for cargoes which costs half of the value of the cargo itself, which is “not sustainable”.

 

“If you see $200K / day return on an LR2 – you can’t expect it to go much further. We have to be a bit more modest. The same for VLCCs. Whenever the value of freight reaches a certain percentage of cargo, things stop.” But meanwhile, “shipowners are in a position to make an incredible amount of money.”

 

For the tanker market overall, “we have an aging fleet in all sectors, we have literally no ordering of ships,” he said. “I think the fundamental outlook looks much better now than in previous cycles due to the fact that the fleet is shrinking in most sectors for the next few years.”

 

OilX

Florian Thaler, CEO of London oil analytics firm OilX, noted that the tanker industry has had a double shock, with first the excess oil supply from Saudi Arabia, then the Covid-19 virus killing demand.

 

The OPEC arrangement to cut supply is seen by many in the oil trading sector as too little, too late, he said. “But we think it is a strong attempt to help us to flatten the curve.”

 

OilX calculates that there could be another 300m to 400m surplus barrels of oil production before tanks get full, which makes for a prediction of mid-June. But then during May and June tankers can provide floating storage as a buffer. But then the next question is how fast demand recovers. Jet fuel may have a slow recovery, or “L shape”. But other markets may be more of a U.

 

Prime Marine

Joseph Tzardis, chief commercial officer of Prime Marine, said that the market is very strange, with bearish predictions on cargo rates but actually very high freight being paid for LR1s and LR2s.

 

“It is an interesting challenge to try to break this down.”

 

When the demand for products dropped, refineries had no alternative but to ship or store them if they couldn’t be sold.  But it isn’t obvious which vessels are chartering for storage or for transport.

 

“We are all drawing ourselves to the same conclusion, tanker availability is hugely uncertain in the months to come. I don’t think anyone can predict the unwinding of storage,” Mr Tzardis said.

 

But meanwhile, “the money made is such that owners dictate freight [rates]. This is not something we have encountered too many times.”

 



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