A grim first quarter for tankers

Back in the 20th century, gasoline retailer Esso advertised petroleum spirit by recommending that drivers ‘put a tiger in your tank’ – a slogan created by Chicago copywriter Emery Smith in 1959. How the tanker shipping industry could do with some cargo to put in its tanks in the Year of the Tiger. Oil prices are climbing to seven-year highs after Opec decided at its February meeting to maintain its 400,000 barrels per day increase each month but not to accelerate it. After all, they need to put some dollars in their banks at least as much as tanker owners wants to put some oil in their tanks. Traders are adding a risk premium to oil prices as Russia plays mind games with NATO over Ukraine. The tanker freight market is still hungover from last year’s over-optimistic expectation that oil demand and seaborne oil trade would recover. The plan was right but reality was wrong, as Kim Ullman of Concordia Maritime put it. According to Poten and Partners, tanker tonne mile demand fell by 5.3% in 2021. This year reality needs to get its act in order and fall into line with the plan. But 2022 has not begun auspiciously. Commuting by air and rail have been exposed as experiences to be endured, not enjoyed The BCTI fell in January to an average 614 points from 766 in December. By February 15 it had crept back up to 684 points, but momentum faltered over the next few days until on February 17 it stood at 676, effectively back where it began the year. The benchmark TC1 route from Mid East to Far East on an LR2 fell from a December average of $10,800 per day to $3,600 in January, going sub-zero on January 19 and falling to $-5,400 on February 7, before staging a partial recovery to $-4,900 on February 17. The bright spot has been in the West, where the MR Atlantic basket average was just shy of $15,000 in December, then slid to a low of $5,000 on January 27 but rebounded to $14,400 on February 17. The MR product tanker has been the best dollar per deadweight tanker to own for years, if only you can get your hands on a modern example. The buyers of the PS London (50,992 dwt, STX 2008) will be very pleased to have exchanged $11.8m in January for a 14-year-old cash machine. If the oil products trade shows some promise, crude oil tankers remain wedged in the Slough of Despond. The BDTI averaged $777 in December and performed like a 777 in January, tumbling to 704 points and on down to 684 on average for the first 17 days of February. VLCC time charter equivalent earnings of $-8,600 in December were followed by a nightmarish average of $-13,000 per day in January and to a truly horrific low of $-21,900 on February 17. The suezmax average TCE of $5,600 in December went negative in January to $-2,300 and to $-2,500 on February 17 while the aframax TCE stumbled from $9,000 in December to $5,700 in January and to $3,500 on February 17. As usual, reality for most operators turned out better than this, basis the quarterly reports and analysts calls from various operators. But most tanker owners are losing money and face a grim first quarter. There is hope that at least some players could yet see out the performance with a smile on their faces. In the Euronav earnings call on February 3, CEO Hugo de Stoop averred that, “the recovery has only been deferred…we continue to expect the freight market to improve to healthy levels even though this is now more likely focused on the second half of 2022” while his head of investor relations, Brian Gallagher, noted that the International Energy Agency (IEA) is forecasting a further demand snapback of 3.3m barrels per day in 2022, implying over 100m barrels per day of consumption for the first time since 2019.’ The IEA has been wrong before, of course. And President Putin may prefer mischief to prosperity. But economists, politicians and epidemiologists are now coalescing around a view that the worst of the pandemic is behind us and that life can start to get back to normal now, assuming we want it to. Commuting by air and rail have been exposed as experiences to be endured, not enjoyed, while everybody now wants an electric car as their second or third family runabout. So even if oil demand recovers, are we nonetheless hovering around peak oil demand anyway? That conversation has been ongoing for several years already but, like a stopped clock, the doomsayers will get the time right eventually.

A grim first quarter for tankers

The red ink is being spilled in ever greater quantities.

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