- TANKERS: USGC VLCC freight at 9-month low as weak demand, natural positions take hold
Singapore's fuel oil imports from the Middle East unlikely to rise in May on high freight rates, inventoriesMay 4
Freight for VLCCs loading on the US Gulf Coast dropped 9% Thursday to bring rates to their lowest levels since August 2019, as news of further global crude output cuts, the coronavirus-related demand destruction and a build in natural USGC VLCC positions continue to have a bearish grip on the market.
Several outstanding VLCC cargoes out of the Americas covered Thursday after several days of a standoff between shipowner and charterer interests, sending the market lower.
Freight for the VLCC 270,000-mt USGC-China route was assessed Thursday at lump sum $5.9 million, down $600,000 on the day, S&P Global Platts data showed. The cost of the route was last assessed at that level on August 2, 2019.
All eyes have been on the hoard of ships that have arrived or are expected to arrive on the USGC from Saudi Arabia, creating more natural positions in the region than is typically seen.
There are currently eight VLCCs slated to arrive on the USGC by the end of May after loading at major Saudi terminal Ras Tanura, while approximately 18 VLCCs are currently sitting off the USGC, according to cFlow, Platts trade-flow software.
At least 12 of these ships are marked as laden or partially laden by cFlow. However, it is unclear if the ships are waiting for discharge or are being utilized as floating storage.
Freight has been on a downward trend since April 21, when USGC-China freight reached one of its many peaks as global crude prices moved off significantly in mid-March after OPEC+ nations failed to reach a supply cut agreement.
VLCC freight had seen support from increased interest in floating storage and spot voyages as charterers looked to take advantage of cheap crude barrels and an ever deepening crude contango structure.
Interest in time charters for floating storage use has since fallen, as the crude contango structure continues to narrow. The NYMEX WTI carry between month one and month six contracts settled at $3.01/b Thursday, lower than the April average of $14.19/b.
Additionally, production cuts over the course of May and June by OPEC+ members and alliances also have aided in stifling tonnage demand along with the existing demand destruction from the coronavirus outbreak.
Global crude demand in 2020 is expected to fall by 8.6 million b/d, according to the International Energy Agency's Thursday announcement, easing by 700,000 b/d from April's estimate.
Not all arrows point downward
A lengthy USGC position list and the prevalence of oil company relets in the market have left charterers with the upper hand in negotiations. However, discharge delays in the USGC have left some charterers hesitant to fix ships with uncertain itineraries, leaving them with a shorter list of available tonnage.
"It depends on your dates," a shipowner said of achievable freight rates. "Whether you can find a cheaper relet, and if you as a charterer insist on a ship that is on the water free of cargo, or if you are willing to chance it with a local itinerary."
Additionally, market sources expect that global tonnage will only tighten further as ships booked on time charter shift into their floating storage occupations, as oversupply continues to outpace global demand.
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