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Tanker breakeven day finally arrives

The tanker markets have bottomed out, but bankers will still be worried about getting their loans back

The tanker markets have been horribly affected by the pandemic as global oil demand fell by 20% and has only slowly recovered half of those losses. Action by OPEC and Russia to reduce output has been followed by President Biden’s ban on exploration and production on US federal lands. Consequently, the global glut of crude oil and refined products inventories has slowly unwound. US inventories are finally back into their five-year range, falling to their lowest level for three years. Gasoline prices have put on a dollar per gallon in the US, causing the administration to put on hold several energy company mergers as the government and industry dance around decarbonisation.

As global oil demand has recovered, oil prices have effectively doubled and trade is finally recovering, even though OPEC decided at its October meeting not to increase output beyond previously-agreed caps. The effect on the tanker markets has been dramatic. For the first time in in 2021, the Baltic Exchange’s VLCC time charter average has risen above breakeven, reaching the heady level of $103 per day in September and $122 in October (to the 22nd). The market bottomed out in July at -$11,015 per day.

Demand disruption from Covid infection may not be over


A $90m VLCC newbuilding with a 60% loan repayable over 10 years needs to earn $40,000 a day to break even on capital costs. In 2021 to date, VLCCs are losing an average of $5,496 a day. Unless the October turnaround markets the start of an entire new cycle in tanker markets, the tanker owners’ financial problems may yet become the tanker owners’ bankers’ problems.

The pattern repeats across the crude oil tanker segments with better numbers. Basis Baltic Exchange data, suezmaxes have remained in positive territory all year but at numbers below operating cost levels, averaging $1,052 per day but $3,068 in September and $2,473 in October to date. Aframaxes have averaged $2,755 year to date, $771 per day in September and $3,787 in October to the 22nd.

Tanker broking specialists Poten and Partners rate spot TCE earnings for VLCCs on the main Middle East to Far East route, using MARPOL compliant fuels (no scrubbers) at -$2,900 per day year to date, but $1,100 per day on October 22. They rate the suezmax spot TCE for WAF-UKC at -$4,900 per day year to date but $2,600 per day on October 22. They rate aframaxes on the main Caribs-USG route as $5,800 per day year to date but a heady $17,600 per day on October 22. Perhaps the markets are accelerating faster than the Baltic indices can keep up.

The clean tanker markets are faring little better. The Baltic’s MR Atlantic basket peaked at $22,000 in May but, having fallen to just$3 per day on September 17, has recovered only to $2,892 by October 22.

Looking further into Q4, there are warnings on oil demand. German and US officials, as well as UK public health leaders, have all warned that demand disruption from Covid infection may not be over. Rising infection rates could yet dampen animal spirits. Q4 may be the strongest this year in global oil tanker freight markets, but October will still be a very watered-down tanker market when viewed through the rear-view mirror.

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