Charter rates soar as supertankers drafted in to solve oil glut

Charter rates: In normal times a collapse in oil prices may have seriously negative implications for the energy sector, but usually also results in lower transport costs for both goods and people,  increased profit margins for most businesses, lower heating costs for all and, ultimately, more purchasing power for the average consumer. But these are not normal times and this week’s collapse in oil prices has been so profound as to send the the price of the benchmark West Texas Intermediate (WTI) futures contract into negative territory for the first time in its history contributing to fears for the world economy. It may not have bottomed out yet, with the  International Energy Agency suggesting that demand may sink by a further 29m barrels a day this month alone.
oil storage facilitiesThe latest developments ‘painted a grim picture of a world still firmly in the grip of the coronavirus crisis, amplifying worries about sinking oil demand’, said Vandana Hari, founder of Vanda Insights, a Singapore-based energy research firm. The value of US equities has dropped, partly because of the weakness in energy shares such as ExxonMobil and Occidental Petroleum, but also because of gathering pessimism about the length of time it will take for the country to fully emerge from lockdowns. Plummeting oil prices are therefore adding to the overall economic gloom.
So far, the only significant  immediate winners from the collapse of the oil price appear to be the shipping industry, as giant oil tankers are being used to hold record amounts of crude at sea due to the global oversupply that threatens to overwhelm the world’s storage facilities. A record 160m barrels of oil has been stored in ‘supergiant’ oil tankers outside the world’s largest shipping ports following the deepest fall in oil demand in 25 years; the last time floating storage reached levels close to this was in 2009, when traders stored more than 100m barrels at sea before offloading stocks when the economy began to recover.
Charter rates for giant vessels that can be used to store oil have more than doubled in the last month to reach highs of $350,000 (£280,000) a day as traders scramble to find space for crude that cannot be sold on to refineries. Shipping experts told the Reuters news agency that 60 supertankers have been chartered to store oil, mostly off the coast of Singapore and in the US gulf coast, as well as smaller crude oil tankers. The amount may triple  to 200 supertankers in the coming months, according to the shipping experts, as commodity traders hunt for extra space to store their crude as demand for oil collapses at a rate of 29m barrels per day creating an oversupply of 9m barrels a day. The analysts expect a ‘massive’ increase in oil storage of between 500m to 1bn barrels of oil which could fill global storage facilities to the brim by May.
A word of warning from GMTC COO Dimitri Antonatos, however.”The industry is experiencing some significant logistical problems due to coronavirus,” he says. “Some ports are closed and getting crews to the ships is also a major issue.”

Source: theguardian