According to MarineLink, freight rates for very large crude-oil carriers (VLCC) along the Middle East Gulf to China route were assessed at about $180,000 a day on Monday, up from some $125,000 on Friday and a weekly low of about $90,000 a day on Wednesday, according to several ship broking sources.
Its difficult to say whether or not the rates will be sustained, or at what levels, but generally looking at Saudi’s export plans for the coming months at more than 10 million barrels per day (bpd) – as well as the demand for floating storage – then you can expect freight rates to remain strong,” said Anoop Singh, head of tanker research in Asia at Braemar ACM Shipbroking.
“But how strong is the question,” said Singh, adding that forward prices for VLCCs for the second quarter were trading at some $170,000 a day for the Middle East to China route.
With world demand for oil forecast to plunge 15 million to 20 million bpd, a 20% drop from last year, traders are increasingly being forced to park crude in storage to take advantage of a record gap between spot and future prices.
The contango spread between May and November Brent crude futures has hit a record $13.45 a barrel while the six-month spread for U.S. crude widened to minus $12.85 a barrel, the biggest discount since February 2009.
In a contango market, prices in the short term are lower than in future months, which encourages traders to store oil for sales in the future at a higher price.
“Almost all the spot (tanker) deals right now have floating storage tied into them – that’s the only way to make money. You’re not going to make money trading the cargo now,” said Ashok Sharma, managing director of shipbroker BRS Baxi in Singapore.
While onshore storage space is typically cheaper than floating storage, traders are increasingly seeking to store oil on tankers as onshore space becomes increasingly scarce.
VLCC time charter rates for floating storage jumped to as much as $120,000 per day by Monday, up from about $40,000 per day at the start of the month, the shipping sources said.
Even at those rates, by storing oil onboard VLCCs for six months, traders could lock in as much as $7 million to $8 million in profit at current market prices, the sources said.
This is the second time this month freight rates have spiked after a surge in demand to ship the flood of crude oil unleashed by a battle for market share between Saudi Arabia and Russia.