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As crude prices collapsed, the oil glut produced one big winner

Shipping is a business of wild swings that tax a vessel operator’s patience and balance sheet, and right now tanker owners are profiting from the same forces that are causing layoffs and bankruptcies at oil companies elsewhere.

Demand for oil has plummeted by about one-third as airplanes are parked on runways and cars sit at home, stilled by lockdowns aimed at curbing the spread of the coronavirus. At the same time, Saudi Arabia and its allies have ramped up output, as part of a price war with Russia.

The flood is filling tank farms to the brim, so traders and producers are chartering ships like de Stoop’s 70 oil tankers to hold their crude, waiting for a more advantageous moment to unload it.

The tanker industry is having its best spell in at least a decade, analysts say.

Ships owned by companies like Euronav are like taxis, waiting for fares. Most of Euronav’s ships operate at so-called spot rates, essentially whatever they negotiate with customers, which vary from day to day.

Oil companies have been chartering Euronav’s Very Large Crude Carriers, or VLCCs — tankers longer than three football fields — for $US150,000 to $US200,000 a day, de Stoop said, depending on where they are going. As it costs about $US18,000 a day to run a ship — for expenses like paying and feeding a crew of 25 — profits at the moment are huge.

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It’s not always this way. To give an idea of the ups and downs possible in the industry, a tanker now heading from the Middle East to China will earn on average about $US178,000 a day compared with $US15,000 a year ago, according to Clarksons, a ship brokerage.

After Saudi Arabia and Russia kicked off their price war in early March, rates soared to well more than $US200,000 a day as the Saudis chartered as many as 18 tankers.

The tanker business is receiving an added boost from the futures market, in which traders are betting that oil in the months ahead will sell for much higher prices than the depressed $US20 a barrel that Brent crude, the international benchmark, has fetched this week. Traders figure they can make money by parking oil on ships and selling it later.

The volume of oil idling off places like Fujairah in the United Arab Emirates or near a Chevron refinery in Long Beach, California, has soared 40 per cent since the beginning of April, to 158 million barrels, said Alexander Booth, head of market analysis at Kpler, which tracks petroleum shipments. That is more oil than the world would consume over a day and a half in normal times.

As shipowners relish the moment, some analysts warn that this corner of the oil industry is unlikely to thrive for long because of depressed demand for crude.

Jonathan Chappell, a shipping analyst at Evercore ISI, a securities broker, said once normality returns the futures market will shift, and traders and companies will liquidate the inventories of oil built up at sea and on land, slashing the need for ships.

“At some point,” he said, “you are going to have to work through the hangover.”

The New York Times

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