Due to the coronavirus pandemic and quarantine in many countries, oil demand collapsed by more than 20% this spring. After the OPEC + countries did not extend the agreement to reduce production in early March, Saudi Arabia began to increase oil production. But even reaching an agreement in early April to reduce 9.7 million barrels per day did not change the actual balance of power in the oil market, because new quotas began to operate in May. As a result, by May 4th, commercial oil reserves in the world rose to 2.951 billion barrels, according to Kayrros, after which reserves began to decline slightly.
Three weeks with the record volumes of oil in commercial history in the history of the United States that arrived in commercial storage occurred in April this year. The maximum was for the week of April 10 - 19.2 million barrels, according to the US Energy Information Administration.
The most striking evidence of the crisis associated with the lack of space for oil storage was the fall of the May futures price on April 20th for WTI to - $ 37.63 per barrel. None of the traders wanted to stay with the contract expiring the next day, on which it was necessary to deliver.
In this crisis situation, it seemed that all participants in the oil market seemed to lose. But for one sector, it turned into a rapid increase in earnings. Tariffs for freight of tankers rose sharply.
In the two months to May 11, the amount of oil stored at sea rose by almost 95% to a record 180 million barrels, according to Kpler, an intelligence firm providing transparency solutions in the energy analytics market . Oil is mainly stored on VLCC class tankers (which can carry up to 2 million barrels), but also on smaller vessels.
According to satellite imagery, approximately 70 loaded VLCC class tankers have been anchored for more than two weeks, said Rebecca Galanopoulos Jones of Alibra Shipping said in a column in the Financial Times. In 2015–2016, when the market was also overstocked, about 50 VLCC class tankers were used for storage.
In Q1 2020, VLCC freight cost increased from $ 30,000 to $ 200,000 per day, according to Euronav CEO Hugo de Stop, whose company is one of the industry leaders. Thanks to this, Euronav's net profit for the quarter increased by more than 1000% in annual terms to $226 million. Its shares soared from 7.53 euros in early March to 11.09 euros in late April - almost 1.5 times.
In recent weeks, oil has risen in price thanks to the relaxation of quarantine, the growth of road and air transportation, and the restoration of industrial production in many countries. Prices reached their highest level in the last three months. At the May 21st auction, the price of a barrel of Brent exceeded $36, and WTI exceeded $34. Spreads between oil futures have also been significantly reduced, so the opportunity to make money on contango disappeared.
Shares of Euronav and other leading tanker operators began to fall since the end of April. Evercore ISI analyst John Chappell told FreightWaves that it’s not profitable for traders to charter tankers for oil storage . Euronav shares closed at 8.72 euros on May 21st.
Now, on the contrary, stocks of dry cargo operators are growing. On Monday, when US stock indices rose 3%-4%, stocks of companies such as Star Bulk, Eagle Bulk, Golden Ocean and others, rose 7%-15%.
A stronger recovery in oil demand is expected only in Q3 2020, so in the short term the market situation for oil tanker operators will remain favorable, says Rebecca Galanopoulos Jones. In her opinion, the boom in tankers could end by the end of 2020.
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