- Crude floating storage on VLCCs rises as China demand falls.
- This fall has compelled several trading companies and cargo-holders to resort to floating storage, mainly on VLCCs.
- The US Energy Information Administration lowered its forecast for average global petroleum and liquid fuels demand for the first quarter of 2020 by 0.9 million b/d.
- At least 40 VLCCs are being used for floating storage near Singapore, but close to half of them are loaded with fuel oil.
- Crude slid for a fifth straight session Thursday to settle at 14-month lows amid a continued focus on the economic impact of the coronavirus outbreak.
- ICE April Brent settled down $1.25 at $52.18/b and NYMEX April WTI was $1.64 lower at market close at $47.09/b.
- Deals for VLCCs regarding short-term floating storage have been done just above $20,000/day.
The coronavirus outbreak has led to sharp slump in global crude demand, and several trading companies and cargo-holders are compelled to resort to floating storage on VLCCs, reports Platts.
Slump in crude demand
The sharp slump in global crude demand, particularly in China has compelled several trading companies and cargo-holders to resort to floating storage, mainly on VLCCs.
Market participants said that the floating storage plan is for up to six months in Singapore and elsewhere.
Demand destruction
The US Energy Information Administration lowered its forecast for average global petroleum and liquid fuels demand for the first quarter of 2020 by 0.9 million b/d, earlier this month.
This is a potential demand destruction equivalent to 15 VLCCs a month.
Crude VLCCs near Singapore
Many companies have parked their VLCCs with crude newar Singapore due to lack of buyers and contract cancellations.
Floating storage deals
According to sources,
- The 2005-built Bunga Kasturi Dua was chartered by Petrobras for floating storage for a month with option to extend for another month at $21,000/day.
- The 2010-built Nave Constellation has been time chartered by NPI for one year with an option to extend by six months or even longer.
- Vitol and Clearlake have also chartered VLCCs with an option to store crude.
According to the shipping industry estimates,
- At least 40 VLCCs are being used for floating storage near Singapore, but close to half of them are loaded with fuel oil.
- The number of VLCCs doing floating storage for crude is not more than 20 including those in West Africa and outside port limits in China.
Storage space issues in China
According to a VLCC broker, the number of ships storing crude in Southeast Asia changes by the day as they wait for storage space to be cleared in China. Similar problems are expected to be faced in South Korea next month.
Tullow Oil has taken a 2008-built VLCC, the Kokkari for short term time charter with a storage option near West Africa, according to brokers.
Refineries in China
According to a broker,
- Most onshore tanks in China are full and refinery runs have been dropped.
- Neither the refineries can stop altogether nor are they able to sell the products due to weaker domestic demand.
- So they are left with no option but to store crude on the VLCCs.
Storage VS Contango
The crude is being stored on VLCCS at a time when there is no clear contango in its prices, where the suppliers can store now and sell later at higher prices. On the contrary, the crude prices are in backwardation.
- Crude slid for a fifth straight session Thursday to settle at 14-month lows amid a continued focus on the economic impact of the coronavirus outbreak.
- ICE April Brent settled down $1.25 at $52.18/b and NYMEX April WTI was $1.64 lower at market close at $47.09/b.
Storage to make profit?
The current floating storage is being described by market participants as holding back cargoes in distress. Still this gives some chance to make profits if the demand situation alters.
According to a VLCC broker in China, “It is a huge problem, [companies] must store the cargo until demand picks up, there is nobody to deliver the cargo.”
Time charter rates
The recent deals for VLCCs regarding short-term floating storage have been done just above $20,000/day. At least one deal was heard to be around $36,000/day, according to sources tracking these developments.
Time charter rates for ships of the same size vary depending on the duration and location of storage and also the age of the ship apart from whether it is fitted with a scrubber.
According to a VLCC broker in Japan, crude prices may recover after the coronavirus epidemic and those long on crude will then be able to make profits.
Cannot hold for long!
One of the companies, which has given a VLCC for such storage said that currently crude lacks volatility and if the average gain in prices is small, “the storage position becomes a risk and the charterer will not like to hold the cargo for long.”
Spreading epidemic
As of now the epidemic is spreading in other countries geographically, ranging from South Korea to Italy. This raises concerns over a strong possibility of weak demand through the second quarter of 2020.
Many of the ships under floating storage may have to wait for one-two months before the onshore tank space is cleared, sources said.
Huge demurrage costs
Why is this storage on VLCCs being done? Just to avoid incurring huge demurrage costs of around $40,000/day while waiting at Chinese ports, an executive with a VLCC owner said.
After floating for a while, few VLCCs currently do Singapore-China voyages. If the demand is less, they do a ship-to-ship transfer on Aframaxes and smaller parcels are moved thereafter, one of the brokers said.
Crude market fall
It was said, in a backwardated crude market where prices are expected to fall further, the challenge for those holding cargoes is not only to cover the cost of storage and cargo but also freight from Singapore to China, if the barrels are purchased on a delivered, or CFR basis.
To move two million barrels of crude in smaller parcels to China will require three Aframaxes, which entails freight costs as well, he noted.
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Source: Platts
