Oil supertankers losing millions certainly are a bullish vaccine trade

The market for moving oil over the world’s oceans happens to be so very bad that owners of the industry’s biggest supertankers are actually subsidizing the delivery of cargoes.

Strange to believe, then, that shares of two of the market’s biggest pureplay owners -- Euronav NV and Frontline Ltd. -- have already been steadily rallying since early February. It’s for the reason that oil tanker sector is emerging as a hot coronavirus vaccine play.

The coronavirus has ravaged both global oil demand and offer, rendering the service fees that owners charge for individual cargo deliveries little short of disastrous. But industry executives, shipbrokers and analysts all say there’s cause to be bullish: the more oil is kept off the marketplace now, the harder the snapback will be as vaccination programs help to revive global oil demand -- and with it the flow of cargoes.
“We are probably never likely to experience a demand increase similar from what we will probably see over another nine months for tankers,” said Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo. “Half a year later on, we could have higher OPEC+ production because the world will consume far more oil as vaccines take effect and economies recover.”

Coming Back
It’s an optimism that already filtered in to the oil market. Banks including Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co. have all hiked their crude-price forecasts in the last couple of months in anticipation of stellar summer demand as vaccination programs take effect.

The International Energy Agency says world oil consumption will be back approaching 100 million barrels a day by the finish of the entire year, about 6% greater than the first quarter. In a written report Wednesday, the agency said OPEC+ could quickly bring supply back if oil markets tighten.

For now though, rates for the industry’s biggest tankers are in the doldrums. OPEC and its own allies surprised markets earlier this month, by keeping existing output cuts for at least per month longer than the oil market had been anticipating.

Oil tankers competing to move 2-million-barrel cargoes from the Middle East to China have lost typically about $2,800 a day in the so-called on-the-spot charter market because the start of February, data from the Baltic Exchange data show.

That compares with earnings of about $250,000 a day a year ago, whenever a downturn in the oil market had oil traders storing fuels at sea on all sorts of vessel that they may find.

Other areas of the shipping market already are strengthening. The Baltic Dry Index, a gauge of ships hauling commodities like coal and iron ore is at a five-month high, while container shipping rates also have soared amid a spate of global inventory restocking.

There are signs that tanker owners are waiting it out for better times too. Normally, such catastrophic earnings would reshape the way to obtain vessels, with ships either being scrapped on the beaches of India, Bangladesh and Pakistan, or sitting idle in bays and harbors off the coasts of countries like Indonesia and Malaysia.

So far, there’s little sign of either happening -- despite ships having their highest scrap values since late 2014.

But additionally, there are relatively few new vessels being built either, further reducing the incentive for a few owners to succumb to weak rates now.

The outlook for vessel supply may be the most bullish since 2003, according to Frode Morkedal, an analyst at Clarksons Platou AS, a unit of the world’s biggest shipbroker. And the prospects for demand look positive too.

“Shipping is a leveraged gamble on the world economy and commodity prices,” analysts including Morkedal said. “The tanker market is likely to quickly recover.”