Scorpio Tankers, the world’s largest owner of product tankers, is expanding its links with Vitol, reportedly providing two LR2s on period charters.
The Geneva-headquartered trader has reached an agreement to take on the LR2s on six-month charters in an effort to take a longer position in the segment, a source with knowledge of the situation said.
The arrangement builds on a 15-year relationship that currently sees several ships that Vitol has on time charter from other owners operating in Monaco-based Scorpio's pools.
Some brokers have reported Vitol has fixed as many 10 LR2 tankers from New York-listed Scorpio on two-year charters attached with a floor rate and floating components linked to Baltic Exchange indices, although the source denied these reports.
One broker said the deal so far only involves two LR2s — the 115,000-dwt STI Rose (built 2015) and 109,000-dwt STI Goal (built 2016).
However, the source indicates that while the arrangement is for the equivalent of two LR2s, it is not necessarily tied to those two vessels as there are swap features that provide flexibility.
The two companies declined to comment.
Post-winter lull
While product tanker spot earnings have softened in recent weeks in the wake of winter peak demand, period rates are relatively resilient as many market participants still believe there will be a market recovery later this year.
Alibra Shipping estimates the rate for a one-year charter of an LR2 at $19,000 per day, up from $17,500 per day at the end of December.
According to analysts, the slowing pace of newbuilding deliveries and arbitrage flows for distillates to meet the IMO 2020 rules will support product tanker markets in 2019 and 2020.
Based on Bloomberg’s latest survey of shipping analysts, the median forecast for LR2 earnings for 2019 is $19,000 per day, increasing to $24,000 in the following year.
Future earnings
LR1s should earn $16,700 per day this year and $21,000 in 2020. MRs are forecast to fetch $15,000 per day in 2019 and $18,000 in 2020.
However, period markets could be quiet in the short run, with owners reluctant to fix out vessels amid lacklustre trading.
“Many in the clean market will be hoping that the New Year in China will bring in a new burst of energy into the market after steadily falling rates over the past few weeks,” Braemar ACM said in a note.
“Unfortunately, with 14 MR newbuilds coming into the market this quarter, as well as some refineries due to be going into maintenance, the forward outlook does not look promising for the coming months.”
