VLCC rates are holding up at healthy levels despite the market cards being stacked against the sector, analysts have said.
Fearnley Securities assessed a trip from the Middle East Gulf to South Korea at Worldscale 52, or a moneymaking $40,100 per day, on Tuesday. That is down 10% from Monday, but only 1% lower than the level a month earlier, the Norwegian investment bank's numbers show.
Market participants are broadly expecting the market to weaken as oil is drawn down from floating storage, releasing tankers back into the spot market.
"VLCC owners are still able to play the market remarkably well given the deteriorating quality of their hand," said Joakim Hannisdahl, head of research at investment bank Cleaves Securities.
"Very limited spot activity last week saw rates edge down 11% week on week, but still at a healthy $47,000 per day."
Contract of affreightment tonnage is covering about one-third of new cargo nominations for the first 10 days of July, adding to the potential downside for spot rates, Cleaves said.
Hannisdahl told TradeWinds later on Tuesday that one fixture from the Middle East to China has now been reported at $28,000 per day, suggesting owners' resistance may be cracking.
A lot better than smaller tankers
The VLCC figures compare favourably to suezmax spot rates of about $6,500 per day and aframax numbers heading down towards a dire $3,000 per day. These levels are down 76% and 87% from last month, respectively.
Fearnley Securities said recent rate spikes have proved very useful for crude tanker owners.
"Given the strong earnings seen in the sector from the fourth quarter of 2019 to the second quarter of 2020, we see limited liquidity risk in the crude names, with especially the higher-levered names able to reduce leverage and increase cash buffers," the firm added.
Analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart said Teekay Tankers has nearly halved its net interest bearing debt from the first quarter of last year to $600m.
The shipowner is expected to hold more than $300m of cash by the end of June.
Suezmax owner Nordic American Tankers' debt is expected to drop below $300m in the second quarter, from $400m in the first three months.
"Moreover, the company is expected to hold about $100m of unrestricted cash by end of June; enough to sustain more than a year at $5,000 per day earnings," the analysts added.
