Euronav has forecast weak charter rates ahead for crude tankers after noting that demand for floating storage is falling more quickly than it had expected.
The Belgian tanker giant said in a quarterly report that reduced supply and demand for crude during the coronavirus pandemic would prove challenging for tanker markets.
“Floating storage requirements dissipated sooner than expected, pivoting the tanker market to a transition phase ahead of our prior forecast,” chief executive Hugo De Stoop said.
Oil analysts estimated the amount of crude stored at sea hit a record high in June, with several oversupply due to an earlier price war and a pandemic-triggered demand collapse.
But the use of tankers as floating storage has been reduced in recent weeks as major producers cut production, while destocking begins in some countries where lockdown measures have been relaxed.
New York and Brussels-listed Euronav is now seeing the peak requirement for floating crude storage at about 275m barrels, compared with forecast of three times that amount made at the beginning of the second quarter.
With bearish market conditions, the company has expected asset prices to be pressured and more aged vessels to be recycled.
Strong quarterly results
The downbeat forecast came as Euronav reported net profits of $260m for the second quarter, roughly in line with market expectation. That was a significant turnaround from a loss of $38.6m in the same period of 2019.
Revenue rose to $435m from $169m due to a spike in charter rates for crude tankers, triggered by earlier demand for floating storage.
The company flipped to net profits of $485m between January and June from losses of $19m during the corresponding period of last year.
“Tanker markets continued to deliver strong earnings throughout the second quarter and into the early part of the third quarter,” De Stoop said.
So far in the third quarter, Euronav’s VLCC fleet in the spot trade has achieved time-charter equivalent earnings of $60,250 per day, with 48% of their available days fixed. Suezmaxes recorded $36,500 per day, also with 48% covered.
Those are strong figures that can be attributed to lower-than-normal coverage and some vessels on “very high” demurrage rates, Fearnley Securities said in a note.
Adjusting for those factors, the brokerage said the time-charter equivalent earnings for VLCCs would be close to “mid to high” $40,000s.
Healthy returns for shareholders
Euronav has also announced it will spend another $25m on share buybacks before end-September after purchasing just under 8.5m shares at an average price of $8.86 recently.
Its shares closed at $9.88 on the New York Stock Exchange on Wednesday.
The company has declared a dividend of $0.47 per share for the second quarter, compared with $0.81 between January and March.
Euronav’s continued focus on return of capital remains in line with its payout policy, said Clarksons Platou Securities.
The investment banking arm of shipbroker Clarksons said that the company's share buyback and dividend together total $0.91 per share, in line with expectations calling for $0.89 per share.
Crew woes
Looking forward, Euronav has stated its main concern would be that more than 600 of its seafarers with expired contracts remain stranded at sea.
Hundreds of thousands of seafarers have faced similar issues in recent months, with travel restrictions across the globe to control the spread of Covid-19.
“Crew changes are critical for all shipping sectors and movement of goods,” De Stoop said. “We reiterate our call to governments globally to acknowledge the essential role seafarers play in maintaining crucial supply chains and global commerce during this pandemic.”
Euronav has called on more authorities to designate seafarers as “key workers” to expedite their travel within and across the borders.
While stressing that none of its crew has been infected with the coronavirus, the company predicts higher crew-related expenditures related to quarantine accommodation and increased travel costs this quarter.
