Euronav has reportedly time chartered out one of its young VLCCs at a stronger-than-expected rate, defying weakness in recent spot trading and reaffirming underlying market confidence.
Brokers reported the 299,999-dwt Desirade (built 2016), which had been trading in the Tankers International Pool, was fixed to Koch Industries for a year at $37,500 per day.
The deal can be extended by another 12 months.
Earlier, it was speculated that Koch had chartered a scrubber-fitted VLCC newbuilding for three years at $38,500 per day. However, the deal apparently fell through.
Euronav declined to comment as it is in a silent period. An email seeking comment from Koch was not returned at the time of writing.
The rate is higher than market expectations. Maritime Strategies International predicts the one-year rate for the VLCC to be $33,200 per day this year and $34,100 per day in 2020.
As of last week, Poten & Partners assessed the one-year VLCC rate to be $35,000 per day for eco tonnage, while Clarksons’ assessment was $37,500 per day.
'Promising undercurrent'
“On the time-charter market, there is a promising undercurrent on the VLCCs when considering the current state of the spot market,” Braemar ACM said.
With the seasonal demand downturn during summer and Opec's continued supply cut, spot earnings for VLCCs have remained weak despite recent tension in the Middle East Gulf.
On the benchmark Middle East-China route, VLCC earnings have fluctuated between $12,000 per day and $15,000 per day in the past two weeks.
Market participants have attributed the weakness to a persistent oversupply of tonnage.
“There is a lack of upwards momentum,” a tanker owner said.
Charles R Weber said in a note: “The VLCC sector has followed the typical historical trend of a slower summer period and, if not for several geo-political incidents in the [Middle East] Gulf affecting sentiment, the market would have arguably been even more depressed.”
However, as shown by the firm period charter rates, most market participants still have faith in a market recovery later this year.
According to analysts, seaborne crude trade is expected to pick up in the coming months, not least due to forecast higher crude runs globally to produce marine fuels in compliance with the IMO 2020 sulphur cap.
“We believe the crude oil tanker market is likely to strengthen in the second half of 2019 because of low OECD inventories and increasing US crude exports,” Jefferies said.
Time lost for retrofitting
According to Braemar ACM, 104 VLCCs are due to be installed with scrubbers to meet the IMO 2020 rules by the end of this year, and 3% of the current trading fleet's operating time would be lost consequently as those vessels need to spend time retrofitting.
“Retrofitting the remaining VLCC fleet would be akin to the trading fleet shrinking by almost 20 VLCCs over the remainder of the year, almost entirely offsetting the 23 VLCCs scheduled to [be delivered] over the same period,” the brokerage said.
In a recent Bloomberg survey of analysts, the median forecast for VLCC earnings is $30,000 per day for 2019 and $41,200 per day for 2020.
