Shipping Cos: Charter gains

Ship owners such as Shipping Corporation of India (SCI), Great Eastern Shipping, Essar Shipping, others are hopeful of yielding better results from the current scenarios in the global oil markets.

Due to COVID-19 shutdowns, oil markets are hopelessly oversupplied and conventional storage has rapidly filled.

On Tuesday, the NYMEX May delivery contract ended in minus $37.63 per barrel for lack of storage.

According to the Energy Information Administration (EIA) data (10 April data), the storage facility at Cushing will hit capacity between end-April and mid-May. Gasoline stocks are already at record highs.

A steep contango structure in the crude market has supported the economics of storage, with market participants turning to oil tankers as a solution given the limited land-based storage available.

Larger vessels such as VLCCs and Suezmaxes were first targeted for storage, which caused spot rates to spike as lists shortened. As a result, ships were chartered out for storage, spot lists shortened and freight spiked in March. According to market reports freight rates across all kinds of tankers have shot by 25 to 30%

That assured the profitability of the floating storage trade to remain intact. Hence, the large vessel owners are dreaming of being paid to bunker their ships as the most extraordinary plummet in oil prices in history.

After spiking in the fourth quarter as the impending IMO 2020 regulation on sulfur limits loomed amid trade tensions between the US and China and sanctions against Cosco Shipping, rates jumped again in March and April as OPEC+ failed to reach a deal on further production cuts.

This led Saudi Arabia to discount its crude and flood the market. Hence, market participants started to load crude on tankers as land-based storage quickly filled.

It is estimated that the global crude oil oversupply to reach 6 million b/d in April and 7 million b/d in May as Saudi Arabia looks to ramp up its crude exports, and with land storage options filling quickly, more oil is set to go on tankers.

In the Mediterranean and Black Sea, few Aframax or Suezmax vessels were reported to be available for storage. VLCC and Suezmax freight rates jumped in the first quarter of 2020, largely due to the oil price war and crude prices tumbling to levels not seen in 20 years.

While sustainability of the freight rates for oil tankers may not remain for a long time as useability of crude oil being important, it remains to be seen how long this current oversupply situation in the oil market continues ahead.

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