Wednesday, December 30, 2020

A Sulphur Cap on Marine Fuel, a Row Over Oil Production, Fluctuating Demand and a Global Pandemic

So What Did 2020 Mean for Shipping and the Tanker Markets?
Shipping News Feature

WORLDWIDE – It would appear that, having been blamed for the original outbreak of Covid-19, China is now widely considered as responsible for at least moderating the detrimental effects of the pandemic on the tanker shipping sector.

2020 has been of course a disaster for many in the logistics sector and beyond, however the latest study by industry analysts such as OilX show the import of crude oil and the like actually rose by 8.5% during the year, the only country to have seen an increased demand. This support for the industry helped mitigate the damage caused to producers and carriers alike.

This glut of purchasing however, in difficult conditions, was not without problems however. Tankers of all types saw increased congestion as the Chinese imports backed up, with some vessels seeing a wait of up to a fortnight before discharging. With the IMO sulphur cap kicking in in January a rise in marine fuel costs had been anticipated but this fizzled out as the pandemic swept the world.

The virus reversed that anticipated rise, with very low sulphur marine fuel oil (VLSFO) dropping in price by around $125 by May to $276 per metric tonne, and its high sulphur equivalent (HSFO), to be only used in conjunction with suitable scrubbers, witnessing a huge fall of over $430, reaching parity with VLSFO on 5 May, and down to just $216 at one point, making what had been an expensive option the cheapest out there.

Marine gas oil low sulphur (MGOLS), much used in Emission Control Areas (ECAs), suffered even more with a drop from $744 per metric tonne in the Singapore January market to just $243, a 67% fall to rival the worst crashes of 2014 and 2008. In the latter the original price of $1,360 has never been seen since and, whatever happens next, history tells us the price recovery is likely to be slow.

At the time of writing prices for VLSFO and HSFO respectively are $415 and $325 in Singapore and $390 and £315 in Rotterdam. Much of what happened with prices can also be attributed to the discord between the OPEC countries and Russia, the glut of carbon based product led to tankers of all sizes in demand simply to store the stuff. When this period passed oil was being sold off at the greatly reduced rates.

So what of the actual tanker markets and how they stood up throughout the year? According to Signal Maritime which collates such data the various tanker types fared differently at times as the year passed. Capesize dry carriers were called upon to replenish reduced stocks of steel in China, leading to a good second half of 2020 as the carriers were employed in costly charters from Brazil with fresh supplies.

Similarly, after a dreadful start to the year, the ‘clean tanker’ sector, specifically LR2s, gleaned huge rates in April with impressive time charter tariffs which soon fell away but remained stronger than their crude carrier equivalents. Which leads us to the ‘Dirty’ segment.

Very Large Crude Carrier (VLCC) rates saw a most turbulent year, crude exports in March driving them upwards, the Russia/OPEC row causing increased production in the Middle East after Moscow refused to cut supplies. This drove that tankers as floating storage blip which promptly ended half way through the year as the oil was sold on. Analysis by Signal Maritime shows 70 VLCCs available in the Arabian Gulf in the first half of the year, increasing to 90 at any time in the latter half, a capacity increase of 28%. At the same point demand for that capacity fell 24%, making this fluctuating market end on a low note.