U.S. refiners are reducing vessel hiring for longer periods to save costs, in another sign of uncertainty over when global oil demand will return to pre-crisis levels, according to shipping and trading industry sources.
The global rollout of coronavirus vaccines and the expectation that stimulus packages offered by governments will boost the global economy have raised expectations of a recovery in oil consumption. But fuel demand remains weak, keeping oil refiners under pressure and looking for ways to limit further losses.
The International Energy Agency, for example, does not expect oil demand to catch up with supply until about the third quarter.
U.S. bookings of long-term contracted tankers, known as time charters, have declined in recent weeks, as this usually means paying higher charter costs, the sources said.
“It is difficult to accept a time charter now, as you will lose money over the next few months and it is hard to justify,” a shipping source said.
Time charter rates for medium-range tankers have fallen from their 2020 highs, with one-year charters at around $12,000 a day, down from highs of around $20,000 a day in July last year, according to industry estimates.
Earnings from three- and five-year time charters have also fallen from last year’s highs, a trend that is weighing on tanker owners’ profits.
“2021 is going to be a bad year for product tankers, even more so when the option to manage parts of their risk in the time charter market is scarce,” said Peter Sand, chief shipping analyst at trade association BIMCO.
Sand added that more time charters were concluded in 2020 than in the previous two years.
This is partly because tankers were booked for storage as demand for oil plummeted.
One U.S. refining executive said he had no plans to return to long-term chartering in the future to reduce costs.
“The last thing you need is to be left with several million dollars worth of unused vessels for the year. We’ve had several instances of that,” the U.S. executive said.
U.S. refiners were also affected by cold conditions in Texas in January, which led to a decline in refinery throughput, causing fewer refiners to seek vessels for shipments and temporarily reducing total exports of refined products.
U.S. exports of refined products have fallen in five of the past six weeks, according to EIA figures.
“Local (U.S.) demand was met by the storage reductions, and combined with refinery outages, this put significant downward pressure on the export market, which was already being affected by weak demand from the COVID pandemic,” shipping group Maersk Tankers told Reuters.
In addition, the reduction in floating storage from last year’s highs has added to a surplus of tankers available for charter.