VLCC owners, struggling to cover opex, let alone break even, are hoping that the H2 revival widely forecasted by many analysts will materialise, whether it be a swift V-shaped recovery or a slower Nike swoosh style uptick.
VLCC owners saw average earnings for non-eco tonnage drop into negative territory last week for the first time in Cleaves Securities’ records dating to 1990.
Average VLCC spot rates are now quoted at an unprecedented timecharter equivalent (TCE) of negative $886 a day. Earnings on the benchmark AG/China are quoted as low as negative $6,541 a day.
Only vessels with both eco spec and scrubber are able to cover opex.
Cleaves pointed out in its latest weekly report, published yesterday, that the VLCC base rate quoted at -$886 per day is based on a generic non-eco and non-scrubber 2010-built VLCC, and is thus not representative for the vast majority of VLCCs on the water. Of the around 775-vessel strong trading VLCC fleet, 49% have eco specifications, 40% have a scrubber installed and 28% have both these features. For VLCCs with both these features, they’re making around $9,700 a day, well below the cash breakeven of $24,000 a day, but at least covering their daily $6,500 opex for a modern vessel.
“The same cannot be said for a vintage non-scrubber VLCC, where opex can be as high as ~$9,500/d,” Cleaves warned.
This split between vintage and modern units in the current dire markets is sparking talk of layups.
Fearnleys discussed last week the “quiet mutterings” of warm layups for scrubberless VLCCs.
Clarksons noted in its most recent weekly report that the VLCC market remains bleak for owners, with the prompt tonnage list in the MEG continuing to grow amid limited enquiry.
“Some modern units are ballasting to the Atlantic where there are fewer older and handicapped vessels, but this is lengthening tonnage lists in these markets. With export levels expected to remain limited in April, there appears little scope for significant uplift in the short-term,” Clarksons warned.
However, further down the curve, interest is still widely pinned on the optimism of the Covid vaccination programme rollout, spurring a return to underlying oil demand.
“In this regard,” Braemar ACM noted in a new tanker report out today, “there are two schools of thought – the first and most optimistic being a sharp V-shaped recovery, the second being more like a Nike tick, bringing a more sustainable recovery with longevity in mind.”