Monday, June 29, 2020

Shipping: Rates to Hire Very Large Crude Carriers Dive As Floating Storage Declines

From S&P Global Platts:

Commodity Tracker: 4 charts to watch this week
As oil markets begin to recover from the shocks of recent months, side-effects like falling VLCC rates and congestion at Chinese ports are emerging, write S&P Global Platts news editors. Plus, competition heats up among corn exporters amid low ethanol demand, and UK power prices reflect improving demand.
1. Freight rates dive as call on VLCCs for floating oil storage lessens

VLCC rates fall as crude oil price recovers
What’s happening? The amount of crude stored on tankers is showing signs of a descent in response to the waning economics for storage, as production cuts and a measured demand recovery aids a rebalancing of the global oil market. The slowdown in storage is already starting to have a significant impact on freight. Rates on VLCCs have plunged dramatically in the past month as a gradual fall in floating barrels prompts an influx of tonnage, which has coincided with fewer spot crude cargoes due to the OPEC+ production cuts. Freight rates for a West Africa-Far East voyage, carrying a 260,000 mt cargo, dropped to an almost year-low last week, according to S&P Global Platts data. Rates on this voyage were assessed at Worldscale 37.50 or $13.51/mt on June 26.

What’s next? “The direction of spot rates will now be dictated by how quickly vessels engaged in floating storage are returned to active trade, and the timing and magnitude of the reversal of the OPEC+ production cuts implemented in May,” S&P Global Platts Analytics said. There are currently close to 190 million barrels of crude on floating storage compared with 200 million barrels earlier in the month, according to data from Platts trade flow software cFlow.