History will record there were no VLCC fixtures at or above the stellar $300,000-per-day rate, despite the frenzy seen in tanker markets earlier this month as charterers scrambled for tonnage.
Even though the near record high rate was recorded by the Baltic Exchange earlier this month, all the fixtures reported at that level subsequently failed "on subjects", market observers now believe.
Most of those provisional fixtures failed to materialise as charterers cooled on news that Asian refineries were being forced to reduce crude imports amid surging freight costs.
Between $150k and $200k
“The highest earnings people actually achieved were probably about $150,000 to $200,000 per day,” one source said.
The Baltic Exchange assessed the time charter equivalent (TCE) earnings of VLCCs for the TD3C Middle East-China route at $300,391 per day on 11 October. Some fixtures were even reportedly done at above Worldscale (WS) 300.
The spike was extraordinary as the TD3C earnings were assessed at $123,472 per day on 9 October and $158,030 per day on 10 October.
“Some fixtures done at high levels on 10 October were firmed up in the following day when the market spiked,” the source said.
Data from Tankers International showed that Al-Iraqia Shipping Services & Oil Trading Co (AISSOT) sublet the 320,600-dwt Diyala (built 2019) to Indian Oil Corp for a shipment from the Middle East to the western coast of India at WS290, equivalent to a TCE of $210,451 per day excluding idle time.
Dynacom Tankers fully fixed the 300,000-dwt Dalian (built 2013) to Singapore Petroleum Co for a Middle East-China shipment at WS205, equivalent to a TCE of $200,418 per day.
Both cargoes are to be lifted in early November.
“Any celebrations were shortlived as once stem dates were confirmed, ways were found to avoid the high freight levels and the rapid rise was replaced by multiple failures,” shipbroker Galbraith's said in a note.
“History of what actually became fully fixed will see only one long voyage concluded above WS205, with the majority in the mid-WS140s.”
VLCCs still 'minting money'
On the Baltic Exchange, the TD3C earnings fell to $88,195 per day at the start of this week, the lowest since 4 October.
“When coming down from $300,000 per day, this does not seem like a lot,” the source said. “But VLCC owners are still minting money at this level.”
Many tanker players believe seasonal oil demand, IMO 2020, and the removal of large tonnage from international trading due to the US sanctions against Iran and Venezuela will support freight rates in the months to come.
“One needs to keep it in perspective as last year’s high was around $70,000 per day,” said Arctic Securities, which suggested a floor could be found at $70,000 per day for TD3C earnings.
“There is plenty of focus on refineries in Asia cutting runs because of the surge in rates, but this is a dynamic situation rather than a downturn driven by falling underlying demand.”
Based on Jefferies’ estimates, US-listed Euronav, International Seaways, Tsakos Energy Navigation and Diamond S Shipping would earn record Ebitda if VLCC earnings average $50,000 per day and suezmaxes $35,000 per day in 2020.
“We believe that the sector’s underlying structural improvement will drive lasting rate strength year on year into 2020, with 2021 looking attractive as well,” Jefferies said.
