Freight for east-facing VLCCs loading in the Americas soared 112%, or $7.4 million lump sum, this week and 75%, or $6 million lump sum, Wednesday, echoing a more than doubling of the cost of carrying 2 million barrel cargoes from the Arab Gulf to Northeast Asia.
“The Americas VLCC market is all being priced against West Africa-East and Persian Gulf-China freight,” a shipbroker said.
The sharp decline of oil prices after the 23-member alliance of OPEC+
failed to reach an agreement to extend or deepen oil production cuts of
1.7 million b/d that end in March and Saudi Arabia instead taking the
lead in flooding the oil markets with “cheap” barrels resulted in a bull
run on global VLCC tonnage either for single voyage charters or for
floating storage opportunities.
Around three dozen VLCCs were seen booked in the Arab Gulf in the
last 24 hours of the Asian trading day and levels on the VLCC Persian
Gulf-China route were seen trading at Worldscale 155 upon Wednesday’s
Americas market opening, up w40 from the Singapore market close.
Shipowners were looking toward ballasting economics from eastern
markets when offering on six first-half April loading cargoes on
USGC-East routes.
“The earnings equivalent of AG-China is $17 million plus,” a
shipowner said, looking toward last-done levels in the eastern markets.
“It takes $17.5 million for China to match the earnings of what is
currently being fixed in WAF.”
S&P Global Platts assessed the 260,000 mt WAF-Far East route at w120, or at $43.22/mt, Wednesday.
Yet Reliance managed to book the Astro Chloe for the East Coast
Mexico-West Coast India run at $12.5 million loading April 15, the
equivalent of $14 million on the benchmark VLCC USGC-China route, Platts
data showed.
Floating storage viable option for cheap oil
The initial Saudi-induced 30% decline in crude prices on the
Singapore market opening Monday prompted strong charterer inquiry for
floating storage opportunities both offshore Singapore and on the USGC.
Although the current crude price contango, coupled with recent gains
in long-haul freight, did not lend itself to storing oil longer term,
negotiations were heard for six-month time charter terms at
$35,000-$38,000/d ($3.20-$3.50/b) at the start of the week and closer to
$50,000-$60,000/d ($4.60-$5.50/b) mid-week, as major oil companies and
traders were heard willing to tug away comparatively cheap barrels that
seemingly defied crude contango economics.
“I am just watching Brent spreads tick lower and am guessing tank
farms are filling as fast as pipes allow,” a crude broker said Tuesday.
“Today might be $60,000/d and won’t happen anymore,” a shipbroker commented on storage economics Wednesday.
US crude cargoes sent to Singapore, or other Asian destinations known
to be storage hubs, could be positioned there in floating storage for a
possible recovery of Asia Pacific demand in the second quarter as
impacts of the coronavirus ease in the region.
US onshore storage demand spikes on contango economics
Storage economics typically improve during a contango market, when
prompt prices are lower than futures prices. NYMEX WTI settled Tuesday
with April $1.50/b lower than July futures. Further down the curve, in
September, the spread to front-month April steepened to $2.75/b.
Demand for storage onshore US has spiked in recent days as storage
brokers and companies that auction storage have seen an influx in
business and request to provide increased options.
“Storage costs for Cushing have increased from the 25 cents/b per
month to 40 cents/b per month based on the price action we witnessed on
Monday,” Ernie Barsamian, CEO of The Tank Tiger, a terminal storage
clearinghouse, wrote in a note this week. “[US Gulf Coast] export
storage is still in the high 60 cents/b per month range. Interestingly
enough, a big drop in the flat price, while helping the contango emerge,
may negatively impact export storage prices in the long run if US
production is curtailed.”
“In my 40 years, I’ve never seen anything like this. We are sitting
on top of a powder keg for oil,” said Richard Redoglia, CEO of Matrix
Global, which holds monthly crude oil storage auctions along the Gulf
Coast and in Cushing, Oklahoma. “It’s a supply shock on top of a demand
shock.
US crude trading declines as international crude floods in US crude cargo trading activity fell to a near standstill this week
as the international crude market has been flooded with supply and the
April/June Brent/WTI spread narrowed.
An April loading of West Texas Intermediate in Corpus Christi late
Tuesday was talked at a $3/b discount to June ICE Brent futures, the
equivalent of a 92-cent/b discount to Tuesday’s 15- to 45-day Dated
Brent strip. An April loading of WTI FOB in Corpus Christi was later
heard to trade early Wednesday at a $4.50/d discount to June ICE Brent.
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