Oil Tankers Win the Crude Wars

Spot VLCC rates doubled overnight.

TD3C (#VLCC AG/China) FFA for April now at $68k/d (vs spot at $30k/d on Friday). FFA for 2Q20 now at 60k/d vs our forecast of $20k/d. FFA 3Q20 at $44k/s vs our forecast at $23k/d. FFA 4Q20 at $56k/d vs $91k/d#oil #tanker #shipping #OOTT $FRO $ADSCME $DHT $EURN $OET $HUNT pic.twitter.com/oA6ecMMCSP

— Joakim Hannisdahl (@JHannisdahl) March 10, 2020

I spotted this divergence yesterday and bought FRO. I have a great memory and recall when crude dropped in 2016 tankers were floating at sea as storage facilities, as producers waited for Brent to recover. Well, look at crude now. Do you think producers want to make delivery now? Probably not. As a result, business is a booming for FRO, TK< EURN and many others. As a point in fact, the tankers are the best performing industry today. Oil is in CONTANGO. This was written yesterday. Spot rates fetched as high as $70k today.

Tanker rates to ship oil in very large crude carriers (VLCCs) are surging as oil traders hunt for ships to store cheap oil in as they take advantage of a 25% plunge in prices on Monday amid a price war between top oil producers Saudi Arabia and Russia.

Shipping rates from the Middle East to Asia, for instance, have risen by more than 25% since last Friday, while several traders are making enquiries to lease tankers to temporarily store oil offshore, traders and shipping sources told Reuters on Tuesday.

The cost of renting a VLCC, which can carry 2 million barrels of crude and can be used for floating storage, was assessed Tuesday at around $38,700 per day, compared with around $30,700 per day on Friday and $14,800 a month ago, ship broker sources said.

“Tanker offers are quite high today,” said a Singapore-based crude oil trader. “Now the contango market structure supports (oil storage), but ship owners are raising prices.”

The rise in tanker chartering rates are a boon for ship owners who have seen demand walloped recently by the fast-spreading coronavirus outbreak which choked commodity and semi-finished goods imports into top consumer China.

“We are seeing several deals being negotiated for short-term (6-12 months) charters, with one already concluded. The fall in oil prices has made floating storage more attractive, although the margins are still relatively thin,” energy ship broker and consultancy Poten & Partners said in a research note.

A Pareto Securities shipping note to clients said “while actual fixing activity was rather limited yesterday, the ‘floating storage’ interest has boosted shipowners’ sentiment and rate ideas have thus been increased substantially.”

FRO isn’t even close to reflecting this new paradigm.