Robert Macleod no longer needs to make a trip to Intersport to pick up a pair of trainers as VLCCs roared back into life yesterday. The Frontline boss would have been watching the plummeting rates through to yesterday with some concern, potentially limbering up for some serious exercise. Macleod had earlier in the year bet an analyst that VLCC tanker rates would not fall back to $20,000 to 30,000 a day by the end of Q3, promising to walk the more than 400 km over the hills from Oslo to Bergen if he lost.
Having dropped dramatically for much of May, volatile VLCCs leapt back yesterday, increasing a huge 54% to $63,000 a day. Fixtures continue to show an upward ascent with reports emerging the 2014-built, scrubber-fitted Maran Libra has been taken on subs at $72,000 a day.
“With increased demand China is sourcing more and more supply from the Atlantic to replace lost Middle East cargoes, adding to ton mile and thinning the MEG position list. Add to that a delayed start to the June program, with corresponding compressed activity, and the VLCC market was rigged for an uptick,” Fearnleys noted in a report this week.
Another Norwegian broker, Lorentzen & Stemoco, reported this morning that as Saudi Arabia has reined in shipments to the US, refiners have started working on more local crude, pushing the price up for WTI.
“With the spread between Brent and WTI reducing sharply, the arbitrage opportunity for exporting USGC crude to Europe and Asia has closed. Instead, a flurry of fixtures has been done for voyages from both the Middle East Gulf and West Africa to China, with loading in the first decade of June, raising VLCC freight rates again,” researchers at Lorentzen & Stemoco reported.
Whether Macleod can avoid his epic hike to the west coast of Norway remains debatable however.
Quizzed today on how sustainable today’s VLCC rates are, J Mintzmyer, a shipping stock analyst from US-based Value Investor’s Edge, told Splash: “It’s difficult to tell if these higher rates have legs or not. Rates are tightening due to simple supply and demand. OPEC was overcompliant with cuts in early May, loading even less than expected and completely resetting the market downward.”
Mintzmyer said the market had tightened again with fixtures ramping up into late May and into early June, sapping back spare vessel supply while over 100 VLCCs are still being used for floating storage.
Less positive however are analysts at shipowning organisation, BIMCO. A report from BIMCO on the tanker trades published on Monday stated: “Rates will continue to fall, as the global economy is unable to provide the demand needed to keep them elevated.”
On the all important floating storage issue, the BIMCO report maintained that number of ships tied up in this niche has peaked and will start to wind down.
“As it does so, tonnage currently tied up in storage will re-enter the market and put further downward pressure on freight rates,” the BIMCO report suggested.
Another Scandinavian outfit was more bullish however with DNB Markets deciding today to upgrade tankers.
DNB Markets upgrading tankers: pic.twitter.com/OBey27jpIE
— Martin Bruteig (@aksjefokus) May 28, 2020