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The daily rate for chartering an oil tanker from Saudi Arabia to China has plunged by over 50 percent in one week to $100,000 as OPEC+ begins on Friday the collective cut to remove 9.7 million bpd from the oversupplied market, Bloomberg reports, citing the Baltic Exchange.
Although tanker owners and operators will see reduced volumes of oil to transport from oil producers to oil-importing countries, the oil shipping industry expects its business to be supported through the end of the year by the most sought-after ‘commodity’ these days—storage space.
Floating storage around the world is at an all-time high as traders have been booking tankers to use as floating storage to take advantage of the contango market structure and sell the crude oil at a later date when prices are higher.
According to shipping sources who spoke to Reuters, there were a record 160 million barrels of oil stashed on floating storage in mid-April, double the volume of oil stored on ships at the start of the month.
Supertanker owners were the early winners in the Saudi price war, the demand destruction, and the following record-high global oil glut. Shipping companies had a field day with Saudi Aramco booking tankers en masse to flood the market with oil, and with traders scrambling to charter tankers for floating storage to sell at higher prices later.
The OPEC+ deal to cut production by 9.7 million bpd in May and June, and then ease those cuts to a total of 7.7 million bpd until December 2020, is set to lower demand for crude oil transportation until the end of the year, according to Lloyd's List.
The frantic hunt for storage is currently supporting tanker rates, but “the oil tanker demand outlook from second half of this year until 2022 has deteriorated significantly from lowered oil supply and an upcoming destocking cycle,” Joakim Hannisdahl, analyst at Norwegian investment bank Cleaves Securities, said, as quoted by Lloyd’s.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.