- The seaborne crude exports are to fall over May and further cutbacks are scheduled in June.
- The release of tonnage from floating storage is now seen as the most influential factor in determining any pace and scale of falling earnings over the remainder of 2020.
- On the other hand, earnings have remained above $40,000 daily for the largest very large crude carriers.
- The revenue has been good for VLCC, despite falling from as high as $250,000 daily at the market peak.
Michelle Wiese Bockmann writes for Lloyds List, about falling economic concerning the VLCC as the storage has hit the peak. Whereas, the earnings for the VLCC have remained above $40,000 daily despite falling from as high as $250,000 daily at the market peak.
Oil Production falling faster
OIL-on-water and floating storage volumes that have propped up demand for crude and product tankers have peaked, the International Energy Agency says. Global oil production for May is falling faster than indicated and an anticipated shortage of land-based storage capacity is now seen as “a less pressing problem”, IEA director Fatih Birol said.
That will have implications for the global tanker fleet, with the Paris-based agency suggesting “destocking” of surplus crude and refined products in storage would begin in the second half of 2020 as lockdown restrictions eased.
Already 86% of ship capacity employed
Record volumes of crude storage on tankers alongside slower steaming and discharge delays resulted in 86% of ship capacity employed at the end of April, according to IEA data in its latest monthly oil report. Tanker rates soared to records in mid-March amid fears that land-based tanks had reached capacity, buoyed by a chartering spike in vessels for floating storage that restricted the available supply of tonnage.
Earnings have remained above $40,000 daily for the largest very large crude carriers, despite falling from as high as $250,000 daily at the market peak.
Release of tonnage from floating storage
With seaborne crude exports falling over May and further cutbacks scheduled in June, the release of tonnage from floating storage is now seen as the most influential factor in determining any pace and scale of falling earnings over the remainder of 2020.
“Implied stock builds have come down but they are still pretty enormous,” Neil Atkinson, the agency’s head of oil industry and markets, said. The difference between supply and demand — implied stock changes — were “considerably lower than we forecast last month” but “well above 12m barrels per day” in the second quarter, he added. Production discipline and no resurgence of coronavirus would be needed for stocks to decline.
“Stocks that had built by 10m bpd in the first half could start to draw by 5.5m bpd in the second half,” Mr Atkinson said. “The implied stock builds are lower than we published last month, so it is less likely that the phrase ‘filling capacity’ will happen.”
There were “localised problems” for land-based storage in US and India “but it is expected that the trend of stocks filling will start to turn around as we move into deficits in the second half of the year, so we’re not saying the problem is over. But we think the problem is less pressing than we first thought a month ago.”
Black April
So-called ‘Black April’ saw “additional volume of oil on the ships increase by 158m barrels” Mr Birol said, equivalent to more than 5m bpd which matched the combined production of Nigeria and the UAE. “A similar trend is following this month,” he said.
Voluntary cuts from Middle East Gulf countries of Saudi Arabia, Kuwait and the United Arab Emirates in addition to already-agreed lower levels, were probably “not enough” on their own to rebalance the market, Mr Birol said. The US would provide the greatest contribution to lower global crude production in 2020, the IEA said, falling 2.8m bpd over 2020.
Additional data adds to IEA assumptions that floating storage and oil-on-water may have peaked and that the worst of the market downturn is behind the sector.
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Source: Lloyds
