Friday, March 13, 2020

Geopolitical Tensions Could Mean Soaring Oil Tanker Charter Rates

As Russia Tries to Hurt the US - Ship Owners Could be the Winners
Shipping News Feature

MIDDLE EAST – RUSSIA – US – WORLDWIDE – For many people the only sign of any fluctuation in the price of oil is a couple of pence (or cents etc.) on or off the cost per litre as they fill the tanks of their car or truck. However currently there is a battle going on which, according to BIMCO, a shipping group which knows about such things, might significantly affect the tanker industry.

BIMCO, the world’s largest international shipping association, understands such matters better than most and points out this week that the oil tanker shipping market is always at the mercy of geopolitics. So when Russia went ahead and broke the OPEC+ production alliance by refusing to acknowledge the need for production cuts there were bound to be effects.

Russia, of course, isn’t even part of OPEC, but the country gained sway three years previously when it joined the cartel in making production cuts. As the coronavirus loomed so Saudi Arabia, which leads the cartel, deemed it necessary to deepen the cuts thus holding up the price. Russia refused and the Kingdom threw its toys out of the pram.

That’s when the politics really kicked in, Russia has been seething over the US policy of imposing sanctions on its oil producer Rosneft and the plans that are afoot to open the pan European gas pipeline NordStream 2. The country decided the big winners from a stable price would be the American shale industry, so refused to agree to production cuts.

Saudi Arabia promptly declared all bets were off and cut oil prices by up to $8 a barrel, some of the largest reductions ever. BIMCO postulates that, as the middle-east ups production, slow steaming might fly out of the window in the scramble to move the goods. The Saudi target is 12.3 million barrels of crude a day, that’s higher than the official attainable capacity, but don’t bet they can’t do it.

BIMCO points out this week that Saudi Arabia has conditionally on charter several VLCC’s, eighteen at least for certain, each with a capacity of 2 million barrels, if all taken up this could play havoc with the market. Average VLCC freight rates stood at $33,709 per day on Friday 6 March, but BIMCO mentions that cutting the sale price of oil by 24% and hiring VLCCs at freight rates up to $197,500 per day, would mean the financial logic behind this is dealt with some other day.

Whether there will be buyers for the vast oversupply of course is the real question. BIMCO questions who could want it? Can refiners see an opportunity to secure low priced feed stocks? Or will it all end up in Chinese or US Strategic Petroleum Reserves?

The point is that, should the Kingdom indeed find a home for the cheap oil it is determined will gush out into the market, even if only for a month or two, crude oil tanker freight rates will doubtless rise sharply.