Thursday, February 19, 2015 5:20:02 AM
The crash in crude prices ignited a race to fix tankers for floating storage in early 2015 but activity in this corner of the market is starting to subside, according to an analyst at Clarkson Capital Markets.
It is widely believed at least 20 VLCCs have been fixed for floating storage.
It is widely believed at least 20 VLCCs have been fixed for floating storage.
In a recent client briefing Omar Nokta noted interest has waned in recent weeks, which leads him to believe that the crude tanker segment will exhibit “its normal seasonal pressures” during the second and third quarters of this year.
“At the start of 2015 we felt spot rates could remain strong despite the likely softer spring and summer months due to tighter vessel supply brought on by floating storage [but] this is shifting,” the forecaster said.
While crude prices are well below levels seen in 2014 the analyst noted that the most recent rally has compressed contango along the first six months of the futures curve to an average of just $0.75 per barrel per month, versus $1.20 at the peak.
“We estimate the break-even storage cost at roughly $1.00/bbl per month, making the use of VLCCs for storage uneconomical,” Nokta continued.
Nokta pointed out that the future still looks “quite favourable”, however, but believes day rates for tonnage trading in the spot market will experience “higher highs and higher lows” than previously anticipated.
Today, VLCCs trading in the spot market were commanding $54,400 per day, which is slightly higher than Tuesday’s average but represents a decline of nearly 10% week-on-week.
Nokta acknowledged that day rates have slipped quite a bit when compared to highs seen a few weeks back but argued that they are still relatively strong.
Earlier in the day analysts at Pareto Securities and other firms were quick to point out that it’s not uncommon for activity to slow in the week leading up to New Year celebrations in China.
“We remain bullish on the crude tanker markets for 2015 [however] and emphasize that the storage-story could very well come into play again soon driven spring maintenance at refineries and filled-up land-based storage,” they added.
Forecasters at Platou believe the market's appetite for floating storage will continue to fluctuate in the near-term but are still optimistic about the future of the tanker segment.
"Since tanker freight rates are the marginal cost of storage, interest for tankers is likely to continue fluctuating with the oil contango in the near term,” they told clients.
“Strong fundamentals of low fleet growth and high oil trade are key reasons to still be optimistic for tanker freight rates regardless of floating storage, in our view.”
Spot market stand-off
Fearnleys claims the start of the March loading programme has been “very slow”, which will likely come as a surprise to many industry observers.
“We are about to go into the Lunar new year festivities in the East and many had thought a lot of stems should have been covered prior to it but this has not been the case [thus far],” the firm told clients Wednesday.
Fearnleys noted that day rates plunged sharply at the start of the week, which prompted a brief flurry of fixtures, but said the gap between what charterers are willing to pay and what owners are asking for “has widened sharply”.
“We therefore have a ‘stand-off’ situation for the time being, the famous game of ‘who-blinks-first’ is being heavily played, and resilience from both sides being tested,” it added.
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