Uncertainty over tanker market prospects next year has prompted an unusual rise in trading of forward freight agreements (FFAs) out into positions three to four years ahead.
Market players reported an uptick in action on 3 and 4 December, which continued into the early part of this week.
Will Clarkson, who runs the tanker FFA business at Oil Brokerage, said that at this time of year it would not be uncommon to see trading in calendar year 2021. Ordinarily, the furthest out would be 2022.
But in recent days the market has been trading out to 2024.
Clarkson added that these have not been small clips of 5,000 tonnes per month, but in most cases trades of larger sizes.
“The TD3C [the VLCC rate on the Middle East Gulf-China route] market has traded out to 2024 in meaningful size, which has brought beneficial price discovery and we hope further outside interest," he said.
“I think Covid has changed people’s perspectives. It is a non-freight issue that is causing a lot of influence on freight.”
Period enquiry
Some traders and majors are believed to be seeking to hedge their future freight positions, while FFA values remain at relatively low levels versus shipowners’ pricing in the period charter market.
Brokers reported a rise in period enquiry for VLCC tonnage from 2021, with BP, Trafigura and Vitol among those looking for vessels.
Bids for a one-year-plus VLCC charter are about $25,000 per day, roughly in line with the pricing of 2022 FFA contracts for the benchmark TD3 route.
But shipowners are generally seeking much higher rates.
“For a scrubber-fitted eco-VLCC, I don’t even think $30,000 would be enough,” a tanker owner said.
Ralph Leszczynski, head of research at brokerage Banchero Costa, told TradeWinds: “If you want to look long term, then I guess locking in a time charter for five years now would be a good idea for a charterer.
“The market will eventually get back to normal from perhaps the second half of next year, if the vaccines work and the world gets back to normal.
“However … a shipowner would still most likely quote you at least $30,000 per day for a period charter for a VLCC, while today the spot rate is something like $5,000 per day.”
