McQuilling Services, a tanker brokerage in New York, has run the numbers on the unexpected increase in Saudi Arabian crude oil projection and finds that demand for VLCC loadings will increase from its base case scenario to an extra 55 VLCC loadings in April, considerably boosting Q2 earnings
Before the unexpected action by the Saudi Arabians over the weekend, McQuilling Services forecast of short to medium-term VLCC demand was based on Saudi Arabian crude oil output remaining at the 10.0M b/d expected for February 2020. The decision to flood the market with an extra 2.3M b/d will have a profound impact on the demand for VLCCs,
McQuilling Services note that demand for crude oil from refiners in Asia was weaker due to lower demand for oil products since the emergence of the Covid-19 coronavirus. It was estimated that refinery runs would be 1.0M b/d lower. Under normal circumstances, McQuilling Services points out, this would have led to a weakening of tanker demand. Furthermore, crude oil inventories are far below the maximums seen in the last five years, so demand for tankers storage is relatively weak.
This translates into VLCC liftings from Saudi Arabia increasing by 20 in March, peaking with an additional 55 liftings in April and trending down to an extra nine in July before reverting to McQuilling’s base case.
The extra loadings will result in an increase in VLCC utilisation by up to 5% above the pre-Saudi Arabian decision levels versus a 2.2% increase in utilisation from the COSCO incident in Q3 2019 when the US Office of Foreign Asset Control sanctioned tanker companies associated with the Chinese state shipping company. McQuilling Services estimates that “will exceed those observed in Q4 2019 over the next three months, with peak levels likely in April.”