Oil Tanker Industry in an Ocean of Trouble

There has been more than enough written about the woes of various segments of the oil industry and related industries so far this year.

But there is one industry that actually thrived during the worst of the crisis: as the world drowned in oil amid slumping demand and excess supply, tanker owners enjoyed a bounce in freight rates as these vessels remained the only storage space for unsalable crude.

OPEC+ oil production cuts helped bring down global inventories, including the massive amounts of oil in floating storage.

This brought down freight rates from over $250,000 per day for a Very Large Crude Carrier to less than $30,000 per day, leaving tanker owners wondering how much longer they could survive.

That’s a lot lower than the $68,000 in average freight rates for the first half of the year. Right now, they have one hope, just like air travel: a successful vaccine?

Oil demand is out the window thanks to the plandemic and there is no telling when—and even if—it will ever be coming back. Yet it is pretty easy to link a rebound in economic activity across the world with a rebound in oil demand. This rebound, however, is contingent on mass vaccinations.

The list of industries that have been hit hard by Covid-19 is long, with shipping being just one of the many casualties,” ship broker Gibson said, as quoted by Hellenic Shipping News, earlier this week.

Although in spring tanker rates surged to unprecedented highs amid discharging delays and floating storage demand, today’s market is very different, with TCE earnings on many trades stuck at or below OPEX for a few months now.

Interestingly enough, demand for tankers for storing oil offshore is on the rise. In fact, Lloyd’s says demand for tankers for floating storage could be the single driver of demand for this industry in the next quarter. Unfortunately, this does not mean that freight rates would recover to the highs of the first half.

Demand for floating storage is helping tanker owners reach breakeven. But it may take a while to get any better than this.

Traders and producers stored as much as 1.3 billion barrels of crude during the first five months of this year, both offshore and onshore, Energy Intelligence’s John van Schaik reported earlier this month.

Although growing demand for VLCC’s for floating storage is on the rise, much of the oil that traders and producers stored in the spring is still there.

Off the coast of China, according to data, there are some 67 million barrels in storage alone. This means that the new demand for offshore storage will by necessity be limited, setting a ceiling on freight rates, too.

Brent crude is trading at just a little over $40 a barrel after last week it fell below this threshold on renewed concern about future demand. WTI is trading below $39 a barrel.

There are more than 170 vaccine candidates in different stages of development around the world. Nine are in an advanced stage of testing.

There are hopes we could have a working vaccine before the year’s end, although medical experts have been warning against too much optimism.

Vaccines are the only thing that could save the tanker industry right now. If there is an effective vaccine and mass vaccinations, air travel will start to recover. If air travel starts to recover, so will overall oil demand.

Oil Prices.com / ABC Flash Point News 2020.