Oil Tankers: VLCC Activity Still Flattish

Research evidence excerpt

Oil Tankers: VLCC Activity Still Flattish

tic, TD15 is better indicator of market rates. Over

the last two months VLCCs spot loadings out of the Atlantic (USG/Brazil/WAFA) hadREPORT averaged ~90 which is up ~25% from February. At the same time Middle East spot

fixtures were ~50 in May (down from over 200 in February) hence the focus on

TD15. Not surprisingly, this week, Petrobras (PBR, Not Rated) has been the most

active charterer of VLCC tonnage with three fixtures as of yesterday, while ADMIC

(think Fujairah loadings) has had 2 fixtures this week.

■ Returning to Work. While many VLCCs in the AG continue to be used as storage,

estimates point to roughly 30-40 VLCCs having been able to leave the region and

return to the active trading fleet (think outside the AG). These 30-40 VLCCs that

largely offloaded crude in India and Asia then were marketed for new cargoes which

saw TD15 spot rates drop from the ~$150k/d in March to their current level in the

$90k/d range, while TD3 is pegged in the $400k/d range in-line with its trailing 4-

week average. And while estimates still point to ~50 VLCCs still in the AG storing oil,

as these vessels return to trading, we expect activity in the AG to normalize which

will pull more vessels back into the TD3 trade and away from the Atlantic.

■ The Standby Fleet. Adding to the strength in VLCC rates, 50-60 tankers are idled in

the Gulf of Oman and East of Suez more broadly. These vessels mostly consist of

the captive fleets of regional NOCs as well as, reportedly, nearly 15 belonging to the

world's largest private VLCC owner. When the Middle East tanker trade normalizes,

the first vessels entering the Gulf could buy local crudes at a discount to the global

benchmarks and allow NOCs to avoid hiring tonnage at today's elevated rates.