A plunge in the volume of crude oil stored on ships combined with unexpected cuts from top producer Saudi Arabia have created a glut of vessels available for hire, pressuring the outlook for supertankers this year.
Earnings for very large crude carriers (VLCCs) in 2020 reached record highs of more than $240,000 a day as the coronavirus battered demand, creating an oil surplus and a scramble for storage on land and sea. Rates have since dropped to $7,000 a day.
“Right now, it is really as bad as it gets for the VLCC market. Floating storage has more or less unwound and the return of that tonnage to the spot market has pressured rates,” Aristidis Alafouzos, chief operating officer of Okeanis Eco Tankers, told Reuters.
“The loss of 1 million bpd of Saudi production equates to annualised tanker demand destruction of 23 VLCCs.”
Clarksons Research Services estimated that as of Jan. 22, 95 vessels – the equivalent of 130 million barrels – were being used for storage versus a peak of over 290 million barrels in May last year.
IHS Markit said volumes on ships – also static for 14 or more days – had dropped to 52 million barrels, the lowest level since the peak in mid-2020 when it reached 190 million barrels.
“IHS Markit does not expect a repeat of last year’s explosive floating storage growth in 2021,” said principal lead analyst Fotios Katsoulas.
“Declining floating storage could further support oil prices in the near-term, as it is considered an indication for demand recovering.”
The numbers exclude Iran’s fleet holding oil and non-commercial longer-term storage by companies.
Demand for floating storage at the peak of the crisis last year was also driven by a market contango, a price structure whereby cargoes for delivery in the shorter term are cheaper than those for later delivery. It encourages traders to store fuel until prices pick up.
Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience in implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor in this space. Stuart has led the “Total Corporate Digital Integration” platform at Sandstone and works with Sandstone clients to help integrate all aspects of modern digital business. He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage and is the Co-Host of the energy news video and Podcast Energy News Beat.
Stuart is on Board Member of ASN Productions, DI Communities
Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.