VLCC earnings closed the week ending 6 March 2020 on US$34,000/day, but over the weekend OPEC+ collapsed and Saudi Arabia reduced crude oil prices and announced an increase in output. Bahri has booked 14 VLCCs sending rates soaring
Following the shock collapse of OPEC+ agreement and Saudi Arabia’s threat to open crude oil production to 12.2M b/d, there has been a scramble by traders to book large tankers to store crude oil and to deliver to the Far East. This morning (11 March 2020), a significant portion of the VLCCS available for work were taken out of the market, according to news agency Reuters. It is reporting that Saudi Arabian national shipping company Bahri has booked up to 14 VLCCs for loadings from the Kingdom. Bahri owns and operates over 40 VLCCs and is only a few years away from building its own VLCCs in the Kingdom.
The reported rates are US$70,000/day, triggering a leap in the rates being offered in the market. The doubling of VLCC rates in a few days is reminiscent of the events in Q3 2019 when the US Office of Foreign Asset Control imposed sanctions on tanker companies associated with the Chinese state-owned COSCO. Then VLCC earnings reached US$300,000/day. There are unconfirmed reports that brokers are now offering open VLCCs at rates equivalent to US$200,000/day for April loadings. The rally will have a positive impact on the earnings of public quoted tanker companies in Q2 2020.
This is not the only pull on large tanker rates: Covid-19 coronavirus is also having an impact. The tanker supply/demand balance is historically tight, with only 68 VLCCs on the orderbook, according to VesselsValue. There are 36 VLCCs remaining for delivery in 2020, and under the current circumstances, owners will be pushing yards to deliver early, perhaps offering to pay dispatch to have vessels in the water as soon as possible. The contango may even develop to the point that newbuild VLCCs switch from loading oil products as the first cargo to going straight into storage duties.
How to handle a volatile tanker market. This year sees the launch of the inaugural Tanker Shipping & Trade Conference, Americas on 29-30 April 2020 in Houston, Texas, USA.