Wednesday, September 2, 2015
Contango could support crude oil storage on VLCCs -- Morgan Stanley
Contango trade in crude that translates into floating storage on VLCCs is becoming profitable again and freight rates could have already bottomed out, Morgan Stanley said in a report Tuesday.
A VLCC typically carries around 2 million barrels of crude.
The 12-month Brent crude spread is now above $8/barrel, which at current bunker prices of around $208/mt can support floating storage even at VLCC time charter rates at $35,000-40,000/day, the report said.
While it may take some time for demand to work through the long idle-tonnage lists, crude tanker rates seem to have bottomed out, it said.
Last week, at least three ships were taken on short-term time charter with storage options for delivery in Singapore, brokers, owners and charterers said.
Two of them had failed, however, and were available again. Taking VLCCs for floating storage can reduce excess tonnage in the market.
In another fixture, the 2003-built Voyager I was placed on subjects by Vitol for a time charter of 50-90 days for delivery in Yanbu.
The euphoria last week over the possibility of floating storage of crude oil is yet to take off in a big way. Opinion over its viability is divided with a section of the industry arguing that owners were pushing for short-term time charter with storage options rather than the charterers.
"Owners are trying to do short-term time charter at current rates, thinking that the market will not recover soon," said a VLCC broker in Tokyo. "Some Japanese owners are considering giving their ships on short-term time charter because of horribly [low] rates," the broker said.
On the PG-East route, time charter rates are almost double the daily earnings on spot voyages, which is a dampener for charterers. Current worldscale rates translate into daily earnings of slightly above $20,000 for owners on spot voyages, compared with around $85,000 six weeks ago.
"The VLCC market has touched its bottom now and owners' sentiment is getting better due to the mini contango in crude prices," said an executive with a VLCC owner.
Charterers aren't convinced. "There are not many prospects for floating storage of [crude] as the economics doesn't work," a chartering source with a South Korean refiner said.
The VLCC executive argued that "if an old ship has been taken at $42,500/day, it has to be economically viable."
He was referring to the 1997-built ex-dry dock DS Vada that, according to market participants, was placed on subjects by Trafigura for a three-month time charter with delivery in Singapore, before being failed for hitherto undisclosed reasons.
"Refinery turnarounds usually peak in October and given the time it takes between chartering and delivery of the cargoes, activity [may] start moving up again in about a month," the Morgan Stanley report said.
"There are a lot of questions, but I don't think anything has been done yet," an executive with a global trading company said, referring to inquiries for floating storage.
--Sameer C. Mohindru, firstname.lastname@example.org
--Edited by E Shailaja Nair, email@example.com