Tanker owners and charterers are awaiting fresh direction in the period market after weak spot rates and the collapse of a major package of business has stalled momentum.
Demand from charterers was high this spring with IMO 2020 on the horizon and fuelling optimism, with May seeing the highest three-year deal for a VLCC in almost half a decade.
That positive sentiment grew further when Occidental Petroleum looked set to fix a string of VLCCs from major owners in June. However, the energy firm pulled the plug soon after news of the deals spread.
'A little bit strange'
Now, with the summer lull in spot rates having taken longer than expected to lift, some major shipowners are reluctant to lock in business as they await a seasonal and regulatory spurred rise in rates.
At the same time, some charterers have filled their requirements and some are questioning whether IMO 2020 will deliver the gold rush that was once forecast.
Euronav chief executive Hugo de Stoop described the situation in the crude period charter market as “a little bit strange”.
A couple of months ago charterers were offering one-year deals at between $30,000 and $33,000 per day for VLCCs, he said.
“That did not go well,” he explained, noting owners were reluctant to give away the anticipated upside in spot rates expected to arise due to IMO 2020.
“After that, we saw again a lot of activity at more elevated levels,” de Stoop said on the company’s second-quarter conference call.
“That's got confirmed by the shipowner sides and then, for some reason, nothing was lifted on the chartering side," he said. "That's very unusual.”
What followed was what de Stoop described as a chaotic period.
Seeking common ground
“I think that both sides of the market are looking at each other and trying to find a common ground,” he said, noting a few charters have been fixed in the $36,000-per-day range.
One of the deals was by Euronav. TradeWinds reported last month the company had fixed the 299,000-dwt Desirade (built 2016) to Koch Industries for a year at $37,500 per day.
Sources have since suggested the deal includes a one-year extension option at up to $45,000 per day.
While de Stoop confirmed one of the company’s VLCCs had been fixed for a year at $37,500 per day, he said Euronav was not in the market “to do a lot of ships”.
In comparison, owner AET is said to have locked one of its scrubber-fitted tankers into a two-year contract with P66.
Sources said it has taken the 320,000-dwt Eagle Versailles (built 2013) for two years at $35,000 per day.
New York-listed DHT Holdings announced this week that it has locked a scrubber-fitted, 2012-built VLCC into a three-year time charter with a leading refining company.
The deal has a base rate of $30,000 per day and full profit on earnings up to $37,500 per day. Profit above this level will be split between owner and charterer.
Spot market improvement
The move comes a week after co-chief executive Svein Moxnes Harfjeld said DHT would prefer to see freight rates rise before fixing charters, to maximise earnings.
However, the spot market has improved since the call, with rates at the highest level seen since the first quarter this year.
Howe Robinson Partners places rates for standard VLCCs at $31,485 per day in the spot market, well up on the $22,610 per day average this year.
Speaking during DHT’s quarterly conference call, Harfjeld said demand remained for eco-VLCCs with scrubbers and those without them. “There is interest still to cover,” he said.
In the past week, the VLCC spot market has finally seen some momentum.
According to Deutsche Bank analyst Amit Mehrotra, the sector is leading a recovery in the wider crude space, with spot rates now at $27,800 per day, the highest level since the first quarter of 2019.
Fleet spreading
“We continue to observe increased activity in the Atlantic (both US Gulf and West Africa) with owners benefiting from a spreading out of the global fleet,” he said in a report on Tuesday.
“We note Chinese crude oil inventories fell 10% week on week to 35.6m barrels per day for the week ended 9 August, the lowest since April, and thus we see opportunity for imports to pick up over the coming weeks.”
Richard Matthews, head of research at Gibson Shipbrokers, said the climb in spot rates was likely to add to the confidence of charterers to take in ships and raise owners’ rate expectations.
However, he added bearish economic news and a downward revisions of oil demand expectations also needed to be factored in.
With spot rates rising, Clarksons has increased its one-year time charter rate estimates for a standard VLCC by 4% to $34,750 per day last week. Its one-year figure for an eco-VLCC has risen 1% to $37,500 per day.
