- Saudi Arabia’s oil production cuts have hit the tanker market so hard that owners of the biggest vessels effectively subsidize cargo deliveries on the industry’s main trade route.
- Supertankers delivering 2-million-barrel shipments of the kingdom’s oil to China are losing $736 a day for the privilege.
- While owners might, in practice, be able to mitigate such losses by ordering captains to sail the vessels slower.
- The reality is that some ships are losing money on Middle East-to-Asia deliveries.
As per the recent news article published in Bloomberg oil tanker owners pay to move crude in the wake of supply cuts.
Negative earnings
While negative earnings may look illogical, owners might be tempted to operate ships at a loss because there are still costs involved in keeping a ship at anchor — so they could lose money anyway.
Vessels that spend too long without moving cargoes also risk losing much-prized approvals, whereby oil companies deem the ships fit for charter. Approvals can take time to secure.
Negative earnings can arise when the fees that oil companies pay to charter ships don’t cover the costs involved.
At that point, owners either have to reject the bookings or pay some of the ship’s fuel bills.
“Earnings estimates are now sensitive to speed assumption,” said Clarksons Platou analysts including Frode Moerkedal. “Although we cannot see it in the average data yet, vessel speed on the empty return voyage from the Far East should go down.”
Reports of low demand
Traders also report lower demand over the past few days from some buyers in Asia. It is a place where refineries will soon start carrying out seasonal maintenance programs and therefore need fewer crude cargoes.
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Source: Bloomberg
