Oil traders and producers are turning crude tankers into floating storage while waiting for prices to rebound, offering some relief to beleaguered fleet owners in Hong Kong amid a slump in the shipping industry.
The new use for oil tankers is a bright spot for the shipping industry suffering from a historic collapse in global trade amid the coronavirus pandemic. Dry bulk rates have fallen to unprofitable levels and container liners have blanked sailings to support prices amid the threat of global recession.
The glut in oil market means onshore oil storage facilities would be full in four weeks or sooner, according to Poten and Partners. Oil demand is likely to have fallen by 10.5 million barrels per day in March from 2019, the energy and shipping brokerage and consultancy said in an April 2 note. It will fall by 18.7 million barrels per day this month.
"We believe the tanker market will remain strong in the coming months," said Zhou Jian-feng, managing director of Hong Kong-based Wah Kwong Maritime Transport, which owns several crude oil tankers. Tanker supply is tight due to demand for storage as oil traders bet on price rises, he added.
Global benchmark oil prices plunged on March 9 by the most in 30 years after Saudi Arabia said it would increase production even as global demand has slumped in the wake of the viral outbreak. Russia also declined to curb its output to protect its market share.
Saudi Arabia chartered 18 very large crude carriers (VLCCs) within 10 hours after the Middle East producer and Russia failed on March 8 to agree on production cuts to support oil prices, according to Erik Broekhuizen, head of tanker research at Poten and Partners. Some 84 VLCCs were signed up that week, compared to 50 on a "normal" week.
"I have been in this (oil) business for 30 years and I have never seen anything like this," said Broekhuizen, who is based in New York.
The unexpected chartering helped lift daily tanker rates to US$210,000 from US$30,000 in the week of March 8. Rates then retreated to US$100,000 before recovering to US$200,000 in late March, Poten and Partners said.
Saudi Arabia's national shipping line Bahri offered to charter a VLCC at more than US$320,000 per day as a floating storage option, as buyers disappeared amid concerns about global recession, Lloyd's List reported on April 2.
Hong Kong shipping companies own or manage 322 crude oil tankers, according to the Hong Kong Ship Owners Association. Their carrying capacity amounts to about 27 per cent of all ships owned by the association members, while dry bulk accounts for nearly 50 per cent of them.
Each VLCC typically carries around 2 million barrels of oil. The total capacity of the global fleet of VLCCs is about 3 billion barrels, with 300 to 500 million barrels of space available for storage, according to Poten and Partners.
The US Strategic Petroleum Reserve has the capacity to store up to 713.5 million barrels of oil, and was 90 per cent full as of January 31, according to the US Department of Energy.
The tanker market could turn quickly, depending on actions by OPEC, Russia and the US, "which is difficult to predict," said Zhou of Wah Kwong Maritime Transport.
Tim Huxley of Mandarin Shipping said that recent remarks by President Donald Trump about settling the fight between Russia and Saudi Arabia saw a recent rise in the price of oil, fuelling speculation demand for VLCC tankers is about to burst.
Russia and Saudi Arabia have since postponed a meeting to resolve their disagreement to April 9 from April 6.
"It's going to be a dramatic couple of weeks ahead," said Huxley.
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