BP has booked a Chinese-owned newbuilding VLCC for three to six months, with weak diesel demand prompting need for vessels just delivered from shipyards to store the refined product, according to market sources.
Stake-linked Cosco Shipping Energy Transportation’s 319,000-dwt Yuan Gui Yang, which will be delivered from Dalian Shipbuilding Industry in mid-November, was reported fixed for $37,500 to $40,000 per day in the short-term deal.
“This is a pretty good deal for the shipowner,” said a London-based shipbroker.
TradeWinds has approached BP and Cosco for comment.
Strong premium for newbuildings
Newbuilding crude tankers are typically fixed at a discount during their first voyages, as they face fewer employment opportunities due to the lack of certification.
But shipbrokers said newbuilding VLCCs can fetch a premium of $10,000 per day in the period market this year because they can be used to load refined products.
“If you were trying to fix a newbuilding out, you would be looking at taking a discount,” BRS research head Andrew Wilson said. “Today, it's a premium.”
Wilson calculated that another seven VLCCs would be delivered by the end of this year. With weak spot earnings, charterers would need to pay more in the period market for their owners to take delivery, he added.
“It reflects the scarcity of these vessels…Traders do have to pay the premium,” Wilson said. “It is pretty much warranted [and] is what the owners are looking for.”
Low diesel demand
Diesel demand in Europe – the world’s largest importer of the fuel – is expected to stay weak in the coming weeks, with major economies like Germany and France entering national lockdowns.
This has pressured prompt diesel prices in several regions, creating opportunities for oil majors and traders to profit from storing the fuel, some analysts said.
“Perhaps it's not even a question of contango but of excess stocks and lack of land storage,” Banchero Costa research head Ralph Leszczynski said.
“The escalation in the virus situation and the introduction of lockdowns in Europe took everyone by surprise, and probably refiners were over-optimistic in their demand scenarios for the fourth quarter.
“[They] are stuck with too much products made in recent weeks they don't know where to put.”
As the Cosco ship is fixed to be redelivered in the West, some suggests it may not be even stationed and would sail slowly to Europe via the Cape of Hope.
Such a voyage could take more than 60 days and be suitable for a three-month contango play.
“If you're an international oil trader, it makes sense to load up in China or Korea…And then you sail it slowly to the Atlantic basin,” Wilson said. “The play would turn a modest profit.
“If you've got a vessel coming out at the moment, I think there are gonna be plenty of traders looking to do this.”
