“Yea, although I stroll via the valley of the shadow of loss of life, I’ll concern no evil …” begins a psalm that may consolation in the present day’s crude-tanker traders.
Crude tankers have been condemned to an prolonged keep in “spot-rate hell,” lamented Stifel analyst Ben Nolan in his newest quarterly outlook. He wrote that the sector is simply on the “midway level within the very lengthy street via the Valley of Dying.” Nolan quoted Winston’s Churchill’s recommendation: “In case you are going via hell, hold going.”
Clarksons Platou Securities estimated that very giant crude carriers (VLCCs, tankers that carry 2 million barrels of crude) have been incomes a mere $4,100 per day on Friday. At these charges, VLCC house owners bleed money. They’ll’t even cowl a voyage’s working bills.
On Feb. 1, Saudi Arabia began a voluntary two-month production cut of 1 million barrels per day to bolster OPEC+ cuts. Saudi Arabia’s shock resolution was one more lashing for crude tankers on high of demand ache from COVID restrictions.
“There is no such thing as a technique to sugarcoat this. Particularly as lockdowns have turn out to be extra — not much less — aggressive,” acknowledged Brian Gallagher, head of investor relations for Euronav (NYSE: EURN), throughout a quarterly name with analysts on Thursday. “We’d like consumption of crude to return to normalized ranges and information on that entrance continues to disappoint.”
Floating storage lastly unwinding
However there’s at the very least some glimmers of hope amid the infernal metaphors.
Crude-tanker shares have traded up over current days. Brent crude is now flirting with $60 a barrel, the very best worth since earlier than the pandemic. And floating storage — a major barrier to the crude-tanker rate recovery — is unwinding at a quicker previous than many market-watchers could notice.
Final March, the production-cut deal between Saudi Arabia and Russia broke down, spurring Saudi Arabia to open its spigots. On the similar time, different nations couldn’t pull again manufacturing quick sufficient to align with plunging oil demand as a result of COVID lockdowns. All of that further crude needed to go someplace. Lots of it ended in floating storage aboard tankers.
Till these saved cargoes are unloaded, crude transport demand might be diminished, as a result of cargoes are already ready offshore of locations. Moreover, every tanker that unloads a storage cargo goes again into the spot market. That creates extra competitors, a detrimental for charges.
Floating storage lingers off China
Commodities analytics firm Kpler offered American Shipper with its newest information on floating storage. Kpler tracks the cargo capability of laden crude and condensate tankers which have been stationary for 12 or extra days. The information covers floating storage in addition to congestion delays attributable to climate and different elements.
The Kpler information reveals that laden, idled crude-tanker capability totaled 75 million barrels (37.5 VLCC equivalents) as of Feb. 1. That’s down sharply from the 188 million barrels on the peak on July 4. Idled capability has been hovering round 65-75 million barrels since mid-January. It hit a current low of 59 million barrels on Jan. 27.
To place that in context, the full-year common for this Kpler dataset in 2019 — earlier than COVID and the OPEC+ production-agreement breakdown — was 59 million barrels day by day. The 2018 common was significantly decrease, at 29 million barrels day by day. However the 2019 enhance was largely pushed by Iranian sanctions, and people sanctions stay in place.
“Slowly however certainly issues are shifting again in the direction of normality,” affirmed Reid l’Anson, senior commodity economist at Kpler.
The most important remaining overhang is idled tankers offshore of China. That capability totaled 22 million barrels as of Feb. 1, nonetheless far above final yr’s day by day common of three million barrels.
Timing the restoration
How lengthy will the darkish stroll via the valley final for crude-tanker house owners and inventory traders? The consensus is: at the very least for the primary half — and possibly longer.
Based on Gallagher, “A return to regular exercise in our lives has been continuously deferred. It seems to be like [oil] consumption will solely return to 2019 peak ranges in 2022.”
Euronav CEO Hugo De Stoop mentioned that weak charges “will almost definitely proceed into the second half of 2021, at the very least.” Underscoring how far-off the restoration could be, he cited potential upside within the winter 2021-2022 season.
Evercore ISI analyst Jon Chappell wrote in his newest quarterly outlook, “It’s at all times darkest earlier than the daybreak, however the query is: How lengthy till the solar rises? Is it 5 a.m. in New York Metropolis in June or is it midnight in Oslo in December? To us, the elemental view feels extra just like the latter.”
Chappell believes it’s “too early to purchase tanker shares, however too late to promote.” (His one exception on the “promote” aspect is Nordic American Tankers [NYSE: NAT], which he calls “our high ‘brief’ concept.”)
Chappell sees VLCCs averaging solely $14,000 per day within the first quarter, rising to $28,000 per day within the fourth, with the total yr averaging $21,000 per day.
Jefferies analyst Randy Giveans is likewise bearish on the primary half, however far more bullish on the second half than Chappell. He initiatives VLCC charges averaging $13,000 per day within the first quarter, rising to $47,000 per day within the fourth, and averaging $30,000 per day for the yr as a complete.
Tanker outcomes roundup
On Thursday, Euronav reported a internet lack of $58.7 million for This autumn 2020 versus internet earnings of $154.2 million in This autumn 2019. Its lack of 29 cents per share was steeper than the consensus forecast for a lack of 22 cents per share.
Euronav’s VLCCs within the spot market earned $20,500 per day throughout This autumn 2020, down 67% year-on-year. The corporate’s spot Suezmaxes (tankers that carry 1 million barrels of crude) earned $12,300 per day, down 71% year-on-year.
Euronav has 46% of its out there VLCC spot days for Q1 2021 mounted at $16,396 per day and 54% of spot Suezmax days mounted at $9,207 per day.
With charges this low, analysts’ focus is on sturdy stability sheets that can enable house owners to outlive and purchase belongings countercyclically — not This autumn 2019 outcomes. As Chappell put it, “Can we simply skip this earnings season?” Click for more FreightWaves/American Shipper articles by Greg Miller
MORE ON TANKERS: Tanker restoration nonetheless distant prospect after Saudi shock: see story here. Frontline’s disappearing dividend speaks volumes on tanker fears: see story here. Tanker shipping liable to uncommon winter hibernation: see story here.