- Diamond S currently owns 66 ships across both the crude and product tanker segments.
- It comprises of 15 Suezmaxes, one Aframax, and 50 Medium Range Tankers.
- Teekay Tankers has a fleet of 26 Suezmaxes, 17 Aframaxes, and nine Long-Range 2 product tankers.
- They are focussed on destocking crude and refined product barrels stored on tankers.
- Heavy floating storage demand spiked in April and May.
- The volume of crude and products being stored on tankers peaked 380 million barrels.
- 150 tankers of Aframax size are currently on the water storing crude barrels.
- Freight dropped 55.1% from the peak of Q2 reached April 27 for MRs lifting 38,000 mt.
- The cost of an Aframax on a 70,000 mt USGC-UK Continent run was $14.27/mt.
According to an article published in Platts, tanker freight rates are expected to see continued pressure from unwinding floating storage for the remainder of the second half of 2020, shipowners Diamond S Shipping and Teekay Tankers Ltd. said in second-quarter 2020 earnings calls August 13.
Focus on destocking crude and refined products
Both calls focused on the global bearish impact that the destocking of both crude and refined product barrels currently stored on tankers, combined with typical seasonal weakness and onshore inventory builds, and how spot rates may react in the remainder of Q3 2020 and heading into Q4 2020.
“We are going to have to get through this unwinding period, it’s going to be painful,“ Michael Fogarty, Senior Vice President-Commercial of Diamond S said in their call. “It’s happening, we are starting to see a drawdown. We still have some work to do before we can get back to the normalized market. And the same is true for the clean [market].“
Spike in heavy floating storage
After heavy floating storage demand spiked in April and May across all tanker segments amid an ever-deepening oil price contango structure, market participants are watching as barrels stored on tankers are unloaded as oil prices stabilize.
The volume of crude and products being stored on tankers peaked June 30 at around 380 million barrels, according to S&P Global Platts Analytics.
Looking at the dirty tanker market alone, 150 tankers of Aframax size or larger are currently on the water storing crude barrels, about 7-8% of the global fleet, CEO of Teekay Tankers Kevin Mackay said Aug. 13. The majority of these barrels are expected to be unloaded by the end of 2020, he said.
“If all [barrels] were to come off today, for example, it would make a horrible market even worse,“ Mackay said.
Current spot market freight rates
Current spot market freight rates reflect the typical summer doldrums seen annually. In the clean market, freight has dropped 55.1% from the peak of Q2 reached April 27 for MRs lifting 38,000 mt on the USGC-Brazil route, last assessed at Worldscale155, or $33.03/mt, Aug. 13.
On the dirty tanker side, the cost of taking an Aframax on a 70,000 mt USGC-UK Continent run was last assessed Aug. 13 at w70, or $14.27/mt, down 27% from the Q2 average.
Looking toward the Forward Freight Agreement market, September contracts for the Aframax 70,000 mt USGC-UKC route were last heard trading at $16.6097/mt, or a w81.5 equivalent, Aug. 13. Expectations of a firmer market environment by Q4 2020 have been reflected in paper trading, however, with Q4 2020 contracts last trading Aug. 13 at $21.1952/mt, or w104.
Increase in tanker demand
Not all arrows are pointing downward, with tanker demand expected to increase after OPEC+ and alliances having set production cuts to 7.7 million b/d starting in August, down from historical supply cuts highs seen in May through July of 9.7 million b/d.
Additionally, weather issues heading into winter months typically lend support to freight rates as logistical delays lead to slow replenishing position lists. The gradual return of petroleum product demand, in line with the easing of coronavirus-related stay home orders, is also expected to support clean tanker strength going into the typically strong Q4.
“As we look toward the back-half of this year, the [International Energy Agency] is projecting an increase in oil demand and we might see more movement through refineries and increased utilization rates,“ Mackay said. “As we start to bleed these ships out of storage and back into the fleet, it’ll be a push-and-pull between those going back in and that increase in demand that we get to see, but that’s the million-dollar question sitting here in August.“
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Source: Platts
