The Whole Oil Market’s Gone Absolutely Nuts!



  • No takers for jet-fuel and gasoline. 
  • Oil refiners run after vessels to store fuel for future market. 
  • Freight rates to sharply rise in this scenario. 
  • Oil refiners force the tanker owners to place their output into ships. 
  • Global refining system is forseeing a fast paced breaking point. 

Jack Wittels, Firat Kayakiran, and Javier Blas write for Bloomberg about the shipping market and their rates that are currently​ stratospheric. 

World level hunt is on for tankers for storing products. As a result, the traders are paying eye-watering prices to the traders for the vessels. For instance, it now costs more than $8.6 million to haul an 80,000-ton cargo of naphtha, a material used to make gasoline and plastics, to Asia from Europe. A year back, the same route was paying little more than $1 million. Rates are soaring on all routes and ship sizes, according to the Baltic Exchange in London.

“The main driver for the rocketing clean tanker rates is that the production of clean product exceeds the current demand and that land-based storages are filling, which drives storage onto product tankers at sea,” said Joakim Norholm Vasehus, a spokesman at Torm A/S, a 131-year old Copenhagen-based owner that operates dozens of refined-fuel tankers.

No land facilities to save oil

  • Traders are looking for any ships they can get their hands on to store supplies at sea.
  • As the on-land facilities are pretty much full or fully booked. 
  • India’s shore tanks for fuels are now 95% filled.
  • This makes it harder and harder to discharge cargoes into onshore facilities.
  • Therefore, it delays the vessels for their next voyages, in turn driving up rates. 

Lack of fuel demand leads to the closure of refineries

The impact of the lack of fuel demand is becoming more evident each day. Over the past week, Marathon Petroleum Corp., one of the biggest U.S. refiners, announced it would stop production at one refinery near San Francisco completely. Royal Dutch Shell Plc. idled several units in three U.S. refineries in Alabama and Louisiana. 

The shortage of tankers to ship or store products is exacerbated by the fact that vessels that traders hoped to become available around now after hauling product remain anchored at ports, waiting to discharge. Oil traders say many import terminals are completely full, forcing tankers to wait on demurrage for weeks until they are able to offload, further tightening fleet availability.


Handysize tankers make the most

Handysize tankers, among the smallest mainstream ocean-going tankers, are making almost $114,000 a day from hauling fuel across the Mediterranean Sea, the Baltic’s data show. That’s an extraordinarily high earnings rate for the ships, and compares with just $12,000 at the start of this year.

The whole market’s gone absolutely nuts,” said Richard Matthews, head of research at E.A. Gibson Shipbrokers Ltd. It’s absolutely unbelievable.” Compounding the issue has been a recent trend for owners to ‘dirty up’ the ships — industry speak for switching over from transporting refined, or clean, fuels to crude or fuel oil instead.  That eroded fleet capacity that’s now desperately needed to move or store products like gasoline, diesel and jet fuel. 

Tankers to benefit from contango structure

Tankers are also sailing on longer routes than usual in order to capitalize on a so-called contango structure that now dominates oil and fuel markets, whereby later dated contracts are at a premium to prompt prices. Charterers are also asking for slower voyage speeds of 11-12 knots rather than 13, taking yet more capacity out of the tanker market, Matthews said. 

Multiple long-range vessels, among the largest to typically haul fuels, have also been used for three- to six-month floating storage of diesel, jet fuel, and gasoline, diminishing vessel supply across the market, according to Randy Giveans, senior vice president for equity research at Jefferies LLC in Houston. 

There absolutely have been many older refined products tankers switching to carry crude,” he said. “This is rapidly tightening the products tanker market, pushing spot rates to record levels and time charter rates to decade highs.” 

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Source: Bloomberg


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