• ITVI.USA
    15,569.490
    38.910
    0.3%
  • OTRI.USA
    24.260
    -0.060
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  • OTVI.USA
    15,521.990
    37.880
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  • TLT.USA
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  • TSTOPVRPM.ATLPHL
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  • TSTOPVRPM.CHIATL
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  • TSTOPVRPM.DALLAX
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  • TSTOPVRPM.LAXDAL
    2.950
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  • TSTOPVRPM.PHLCHI
    1.690
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  • TSTOPVRPM.LAXSEA
    3.130
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  • WAIT.USA
    120.000
    0.000
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  • ITVI.USA
    15,569.490
    38.910
    0.3%
  • OTRI.USA
    24.260
    -0.060
    -0.2%
  • OTVI.USA
    15,521.990
    37.880
    0.2%
  • TLT.USA
    2.700
    0.000
    0%
  • TSTOPVRPM.ATLPHL
    2.500
    -0.050
    -2%
  • TSTOPVRPM.CHIATL
    3.080
    0.050
    1.7%
  • TSTOPVRPM.DALLAX
    1.370
    -0.080
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  • TSTOPVRPM.LAXDAL
    2.950
    0.040
    1.4%
  • TSTOPVRPM.PHLCHI
    1.690
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  • TSTOPVRPM.LAXSEA
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  • WAIT.USA
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American ShipperMaritimeNewsShipping

Tanker craziness continues as product carriers hit record high

The world’s oil spigot cannot be turned off fast enough, and petroleum no one needs is now pouring into tanker cargo holds like rainwater into buckets under a leaky roof.

Plunging oil demand in the wake of the coronavirus pandemic has precipitated surging tanker demand. As the saying goes, “One man’s misfortune is another man’s fortune.”

Shares of crude-tanker owners Nordic American Tankers (NYSE: NAT) closed up 23% on Monday, with DHT (NYSE: DHT) up 9% and Euronav (NYSE: EURN) 7%.

Shares of product-carrier owners Ardmore Shipping (NYSE: ASC) and Scorpio Tankers (NYSE: STNG) gained 12% and 7%, respectively.

In the mixed-fleet category, Tsakos Energy Navigation (NYSE: TNP) stock rose 16%, Navios Acquisition (NYSE: NNA) 12%, Teekay Tankers (NYSE: TNK) 11%, Teekay Corp. (NYSE: TK) 10% and International Seaways (NYSE: INSW) 8%.

Product tanker bonanza

Long Range 2 (LR2) product tankers, which have capacity of 80,000-119,999 deadweight tons (DWT), are earning an unprecedented $165,000 per day, according to Clarksons Platou Securities. The previous record of $80,000 per day was set all the way back in 2001.

An LR2 has the same capacity as an Aframax tanker that carries 750,000 barrels of crude oil, yet an LR2 is now earning essentially the same rate as a very large crude carrier (VLCC) that carries 2 million barrels, 2.7 times the capacity of an LR2.

LR1 product tankers (55,000-79,999 DWT) are earning $110,000 per day versus the prior record of $65,000 per day; medium-range (MR) product tankers (25,000-54,999 DWT) $75,000 per day versus a previous all-time high of $43,000 per day; and Handysizes (10,000-24,999 DWT) $90,000 per day versus the former peak of $65,000 per day.

“Physical land-based refined-product storage capacity is effectively full, but refineries are by and large still refining,” explained Stifel analyst Ben Nolan. “That means that ships full of gasoline, diesel, jet fuel, naphtha, etc. cannot discharge and are piling up outside import terminals, but refineries with no storage capacity still need the export relief valve and are paying virtually anything for the much-compressed tanker capacity. As a result, product tankers are earning more than they have ever.”

Frode Mørkedal, managing director of research at Clarksons Platou Securities, explained how unusual the lofty product-tanker rates are. “Tightness in the VLCC market typically spreads quickly across the large crude-tanker sector given that there are far fewer loading and discharge ports for VLCCs and Suezmaxes [tankers with capacity to carry 1 million barrels of crude].

“Product carriers trade actively across a wide array of ports,” he continued. “Usually there can be pockets of tight supply and areas with excess ship availability, which keeps rates generally bifurcated by region.

“In today’s market, however, MRs and Handys, and of course LRs, are being tasked with moving cross-hemisphere as charterers reroute cargoes, given that ports are increasingly unable to accept ship calls without meaningful delays. This is causing even tighter supply as ships are being used to travel longer distances, are being used for storage and are increasingly trapped at port waiting for discharge,” said Mørkedal.

The storage shortfall ultimately means that refineries will have to shut down capacity — and many are now doing so. But according to Nolan, “those refineries closest to the coasts with export markets as a relief valve are less likely to close [than inland refineries], so we could be in a structurally very strong product-tanker market for some time.”

Crude prices falling back again

With product-carrier capacity being overwhelmed by excess refinery output, it goes without saying that refineries do not need more crude inputs. Crude cargoes that have already been loaded aboard tankers are increasingly stuck, unable to unload.

The price of crude oil is a visible indicator of the supply-demand mismatch. Crude-oil prices rebounded from historic lows in the second half of last week on news of production shutdowns and escalating U.S.-Iran tensions (a military conflict that closes the Strait of Hormuz would be the equivalent of a massive production shutdown).

But oil has now resumed its steep slide. On Monday, WTI fell 25% to $12.78 a barrel and Brent declined 9% to $19.62 per barrel.

Declining crude prices create a wider contango — the spread between the spot price and the forward price for the commodity — making it more attractive to charter tankers and use them as floating storage in a “buy-low, sell-high” trading strategy.

According to Randy Giveans, analyst at Jefferies, “Last week, the U.S. Energy Information Administration reported that 60 million barrels of Cushing’s 76 million barrels of storage capacity [in Oklahoma] was filled, or around 80% of capacity, while traders noted that any remaining space has already been contracted out. Similar stories are being reported in India, Canada, the Caribbean, Europe, South Korea and Singapore.

“As such, we believe the steep contango in Brent crude prices will continue due to COVID-19 demand destruction, which will further support floating storage demand and tanker rates.” Click for more FreightWaves/American Shipper articles by Greg Miller

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Greg Miller, Senior Editor

Greg Miller covers maritime for FreightWaves and American Shipper. After graduating Cornell University, he fled upstate New York's harsh winters for the island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York City, where he served as senior editor of Cruise Industry News. He then spent 15 years at the shipping magazine Fairplay in various senior roles, including managing editor. He currently resides in Manhattan with his wife and two Shih Tzus.

One Comment

  1. LOL! At those rates, the owners of the oil will never see a dime of profit off of this oil. Oh the insanity of all of this. For nothing worse than the common flu…

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