Supertanker rates ease after traders left all at sea

A view of Hin Leong's Pu Tuo San VLCC supertanker in the waters off Jurong Island in Singapore. (REUTERS/Edgar Su/File Photo)
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Updated 25 April 2020

Supertanker rates ease after traders left all at sea

  • Output cuts hold key to further price spike, brokers warn, as oil cargoes struggle to find a home
  • Very Large Crude Carrier rates for floating storage have recently traded at about $120,000-$130,000 per day for a six-month charter period.

SINGAPORE: Supertanker freight rates eased this week as surging demand for floating storage cooled and crude oil output is set to fall, but rates could jump again as fewer tankers become available and as traders take advantage of weak oil prices, sources said.

Tanker rates jumped earlier in the week after US WTI crude futures for May turned negative ahead of their expiry for the first time ever on Monday as desperate traders paid to get rid of oil, prompting a spike in demand for tankers able to store it for sale at higher prices at a future date.

Very Large Crude Carrier (VLCC) rates for floating storage have recently traded at about $120,000-$130,000 per day for a six-month charter period, trade sources said.

This compared to rates of about $85,000 per day for a six-month period before WTI crude turned negative, the sources said.

Spot VLCC rates for the Middle East to China route were at about $9.8 million on Friday, lower than the $11.5 million on Thursday but above the $8.9 million on Monday prior to the collapse in US WTI crude oil prices, trade sources said. 

“After WTI recovered from its collapse into negative territory, the contango has narrowed considerably and the incentive for storage has reduced somewhat, pushing tanker rates a bit lower,” said Ashok Sharma, managing director of shipbroker BRS Baxi in Singapore.

Declining output from key oil producers also contributed to the softening of tanker rate, ship broker sources said.

Under a deal agreed between the Organization of the Petroleum Exporting Counties and associated producers including Russia, a grouping known as OPEC+, output cuts of 9.7 million barrels per day (bpd) are due to kick in from May.

Despite the output cuts, however, tanker rates may rise again amid a growing global glut of crude supplies with more oil cargoes on board tankers struggling to find a home being forced into floating storage, the trade sources said.

“On a global average, a VLCC will present itself for re-employment about two to three months after loading. But now, because of this floating storage play, we are unsure know when a VLCC which is involved in a storage contract will come back into the market and present itself for employment again,” said Sharma.

Of the roughly 800 VLCCs in the global fleet, as of Friday 10 percent have been contracted for floating storage, according to Sharma adding that this number could increase depending on the oil price.

“Because of the number of ships going into storage and as a result being out of the spot market for an extended period, we’re very likely going to find a shortage of ships available for the spot market in the near future, potentially giving support to freight rates,” said Sharma.

In the near term, analysts say next month could see a repeat of Monday’s frenzied crude price activity with the June contract unless production is cut more swiftly.

“We might see another resurgence when the next month’s futures contract expire,” said the tanker broker.


Britain expects ‘very significant’ week for Brexit talks as clock ticks down

Updated 29 November 2020

Britain expects ‘very significant’ week for Brexit talks as clock ticks down

  • Despite missing several self-imposed deadlines, the negotiations have failed to bridge differences on competition policy and the distribution of fishing rights
  • Britain’s transitional EU exit agreement expires on Dec. 31, and Britain says it will not seek any extension

LONDON: Britain and the European Union are heading into a “very significant” week, British foreign minister Dominic Raab said on Sunday, as talks over a trade deal enter their final days with serious differences yet to be resolved.
EU negotiator Michel Barnier told reporters in London that “works continue, even on Sunday” on his way to a negotiating session, as both sides look for a deal to prevent disruption to almost $1 trillion of trade at the end of December.
“This is a very significant week, the last real major week, subject to any further postponement... we’re down to really two basic issues,” Raab told the BBC.
Despite missing several self-imposed deadlines, the negotiations have failed to bridge differences on competition policy and the distribution of fishing rights.
But Britain’s transitional EU exit agreement — during which the bloc’s rules continue to apply — expires on Dec. 31, and Britain says it will not seek any extension. A deal would have to be ratified by both sides, leaving little time for new delay.
“The bottom line is... in the ordinary course of things we need to get a deal done over the next week or maybe another couple of days beyond that,” Raab told Times Radio in a separate interview.
Earlier, he had signalled some progress on the ‘level playing field’ provisions which look to ensure fair competition between Britain and the EU, and said fishing remained the most difficult issue to solve.
Despite accounting for 0.1% of the British economy, fishing rights have become a totemic issue for both sides. Britain has so far rejected EU proposals and remains adamant that as an independent nation it must have full control of its waters.
“The EU have just got to recognize the point of principle here,” Raab told Times Radio.