VLCC Tankers Storing Crude are Much Less than Claimed

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Reports this week indicated that VLCC availability has been limited by a surge in floating storage which has consumed a large segment of the fleet, raising fears about the timing and implications of a mass return of these units to normal trading.  However, according to shipbroker Charles R. Weber, “in examining both AIS idle fleet data and our proprietary commercial deployment data on a granular basis, we believe that the extent of floating storage has been overstated”.

CR Weber said that “there are presently 42 VLCC units that have been idle for at least two weeks and 27 units that have been idle for at least one month.  Far from the notional implication, however that the number of units engaged in storage has expanded by 56% over the past two weeks to now account for 6% of the trading fleet we find the reality to be quite different on the basis of individual vessels’ circumstances.  Three of these units are in dry dock, seven are constituents of Iran’s NITC fleet (which regularly interchange between storage, ship‐to‐ship transfers and customer deliveries), seven are being actively used for either fixed storage (having been withdrawn from trade by their current owners for this purpose) or to facilitate ship‐to‐ship transfers.  Ullage issues or onward trade complications have delayed the discharge operations of three units.  Once factoring for the above, we find that just 14 units, or 2% of the trading fleet, are actively storing crude.  This tally of units engaged in floating storage does not represent a material deviation from storage levels observed over the past 18 months”, said the shipbroker.

“How readily the market will be able to absorb the 14 units upon their exit from floating storage depends heavily on how global VLCC trade routes are distributed at the time.  As has become the case in recent years, vies between markets for tonnage and declining efficiency in trade patterns have helped the VLCC market to escape a structural oversupply situation that would otherwise be suggested by the traditional supply vs. ton‐miles view”, said CR Weber.

Meanwhile, in the crude tanker market this past week, in the VLCC segment, the shipbroker noted that “rates in the VLCC market commenced the week with a modest degree of support as participants took stock of a relatively balanced overall Middle East and West Africa combined supply/demand positioning. As the week progressed, however, sluggish demand in the Middle East market eroded owners’ bullish position by raising fears over likely March volumes which led to fresh rate losses. A total of 24 units were reported fixed in the Middle East market; although the figure represents a 71% w/w gain, it remained 10% below the 52‐week average. The West Africa market observed a rebound of demand with the week’s fixture tally of six representing a doubling from last week’s tally”, said CR Weber.

According to the shipbroker “to‐date, a total of 36 March Middle East cargoes have been covered (inclusive of 32 for loading during the month’s first decade and four during the second decade).  We anticipate that a further 8 first‐decade cargoes will materialize and anticipate further demand length in the West Africa market given that the March export program there was heavily subscribed by Asian buyers (thus favoring VLCCs over Suezmaxes).  There are 31 units available for loading through March’s fist decade in the Middle East which implies a likely surplus of 16 units once additional demand in both markets is accounted for.  A week ago, the surplus appeared likely to fall between 6 and 12 units, illustrating a widening supply/demand imbalance.  Despite this, rates could stabilize during the upcoming week as charterers are likely to be busier in the Middle East market covering remaining first decade cargoes and progressing concertedly into the month’s second decade”, CR Weber concluded.

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Source: Charles R. Weber

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