Frontline Plc【FRO】株式ニュース

Tanker Recovery Still A Prospect

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January 7, 2021 09:36 AM ET (BZ Newswire) -- News
"It feels a bit like someone stole our clothes while we were enjoying a swim," mused the analyst team at Fearnleys. They were quoting a political saying and referring to what just went down in the tanker market.

For very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude), 2021 started out "with hope in the air." Crude-tanker stocks including Euronav (NYSE:EURN) and Frontline (NYSE:FRO) rose on the first few trading days of the year. "Tanker stocks certainly caught a bid," said Jefferies analyst Randy Giveans of the earlier tanker stock gains.

Then Saudi Arabia announced Tuesday that it would unilaterally cut crude production by 1 million barrels per day (b/d) in February and March.

Positive sentiment after New Year Asked about drivers of positive investor sentiment, Evercore ISI analyst Jon Chappell told American Shipper that there "seems to be a fair amount of optimism on oil demand recovering post the rollout of the vaccine. Throw in a historically depressed orderbook and stocks trading at large discounts to NAV [net asset value] and it doesn't take much of a sentiment shift to move the need off the bottom."

Then came the OPEC+ coalition meeting. Tanker proponents pinned hopes on a Russia/Kazakhstan proposal to increase collective output by 500,000 b/d.

Instead, Saudi made its surprise cut. Russia's and Kazakhstan's February-March output were increased by 65,000 b/d and 10,000 b/d, respectively. Gains will reportedly be used to cover increased wintertime domestic needs, not tanker exports.
The latest OPEC move followed the decision to relax production quotas by 500,000 b/d in January. That's well below the 2 million b/d relaxation being hoped for by tanker players.

Saudi decision near-term negative The Saudi cuts are "likely to reduce demand for VLCCs, putting freight rates under further pressure," said Platts.

Citing data from Vortexa, Platts noted that VLCCs carried over 82% of Saudi Arabia's exports. It estimated that Tuesday's cuts would equate to around 12 fewer VLCC loads per month in February and March. That would "negate any impacts of the relaxation of OPEC production constraints from January."

Chappell warned in a new client note, "Fewer Middle East exports will pile on to a market already under pressure from inventory destocking, shaky demand and elevated overcapacity, threatening to keep spot rates for most crude-tanker sectors well below cash breakeven for the remainder of the first quarter."
He added, "Spot rates today, in the dead of the Northern Hemisphere winter, are as soft as at any time over the last several decades."

According to Clarksons Platou Securities, VLCC rates are currently at $16,600 per day, down 17% month-on-month. At this time last year, they were $95,300 per day; at this time in 2019, $38,500 per day.

Rates for Suezmaxes (tankers that carry 1 million barrels of crude) are now $5,300 per day, down 24% month-on-month. A year ago, they were $66,900 per day; two years ago, $33,000 per day.

Saudi decision could heal market faster Giveans said that Saudi Arabia's decision reflects that nation's "should help rapidly reduce floating crude inventories."

According to Chappell, "The Saudi decision is likely to prevent a more punitive inventory build through a softer demand patch, enabling draws to continue and thus placing the oil and tanker markets in a position where a stronger rebound can unfold as soon as global oil demand finds its footing, which will hopefully be associated with a more robust vaccine rollout."

"A quicker inventory drawdown associated with this move will only help tanker markets to eventually embark on a more sustainable cyclical recovery," said Chappell.

Recovery timing "My expectations are that the tanker market remains weak for the next three to six months as inventory levels continue to be destocked and demand slowly increases," Giveans told American Shipper.

"However, we expect a much stronger market in the second half and throughout 2022 as ton-mile demand accelerates and fleet supply growth remains muted through at least 2022."
Chappell sounds more bearish. He expects "the early stages" of a fundamental tanker recovery in the second half. "Not a great period by any means. But substantially better than the second half of 2020 and first half of 2021."

After the early recovery, he believes "2022 should start to look pretty good — but probably still not great."

Geopolitics is the wild card
In tanker markets, rate environments change overnight due to major geopolitical events. There is currently a very high level of tension in the Middle East. A limpet mine attached to the hull of the tanker Pola moored off Iraq's Basra Oil Terminal.
On Monday, Iranian military sezied the South Korean-flagged chemical tanker Hankuk Chemi. The Iranian military allegedly seized the ship due to environmental pollution. But the timing coincides with allegations that South Korea owes Iran for oil sales.

There is also concern over the risk of potential military action between Iran and the U.S. in the waning days in power for President Donald Trump. In the past, heightened military action led to higher tanker spot rates as importers rushed to obtain cargoes, fearing a blockage of the Strait of Hormuz. This time, the equation is somewhat different, given that there is already a large amount of floating storage available.

Middle East unrest scenarios

Asked what would happen to tanker markets if there were a conflict or increased threat, Chappell responded, "You can never ignore the psychological impact of Middle Eastern conflict on tanker markets. Even a pickup in rhetoric can have an impact on chartering activity and sentiment.

"A military conflict, though certainly unlikely, could have an outsized impact on tanker markets and equities. I do believe the spare capacity in the market today and the still-elevated floating storage could mute the panic. But at the outset, with little clarity on duration, there would still likely be a desire to secure supply — both of oil and tankers.

"I would expect any escalation or conflict to lead to an immediate boost to chartering and support to VLCC rates," he said.
The problem, Chappell continued, is that "if the rhetoric or event is short-lived, the market has to deal with the front-end loading of this chartering and additional storage. So, although that type of event could boost [tanker] stocks for a short period, it is not a desired outcome."

Asked the same question, Giveans responded, "Geopolitical turmoil and hostility, especially in the Middle East, usually disrupts the oil trade and causes chaos in the tanker markets. If there is a military conflict at the Strait of Hormuz, that would certainly be a short-term negative. But the positive would be that the currently elevated inventory levels would decrease rapidly. And longer-haul voyages — exports out of the U.S., Brazil, Norway and West Africa — would increase." Click for more reightWaves/American Shipper articles by Greg Miller

MORE ON TANKERS: Frontline's disappearing dividend speaks volumes on tanker fears: see story here. Tanker shipping at risk of rare winter hibernation: see story here. Why crude tanker collapse could be long and painful: see story here.

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