Tankers

Why it pays to be long on product tankers

China’s health policies have a lot to answer for when it comes to tanker fortunes

Tanker owners’ opinion of the last few weeks will be formed by the constitution of their fleet. On the whole, owners who are long products tankers and short crude oil tankers will be happier.

The problem is China, the world’s biggest crude oil importer, the second biggest refiner, ahead of the EU but behind the US, and usually a leading exporter of refined products. The Chinese government’s public health policies have now shuttered in around one third of the economy for over a month. Transport fuel demand is down in China with consequences all the way along the supply chain to the tanker markets.

Chinese demand for gasoline, diesel and aviation fuel fell about 10% year on year in April – or about 1.2m barrels per day to about 12.7m barrels per day. Independent refiners slashed utilisation rates to barely above 50% of nameplate capacity as onshore storage for crude and products filled up. The big state-owned oil companies were running refineries at about 70% capacity. This led to pleas to central government to be allowed to export more product. Those pleas appear to have been denied. The rest of the world should thank President Xi for his intransigence; higher Chinese oil demand could have added another $10 or $20 to benchmark oil prices.

The Baltic Dirty Tanker Index recorded a fall of 38% from April 12 to May 18 giving up all the unseasonal gains it had made in March and April. Thanks, China.

China’s oil demand is expected to show a recovery of up to 0.5m barrels per dayin May and to move upwards from there as lockdowns ease. But this might not offer succour to crude oil tanker owners, as refiners have to work their way through expensive inventories before making additional spot purchases of crude. China’s crude oil stocks hit a 10-month peak of 924.7m barrels according to data crunchers Kpler.

In the clean tanker market, the consequences of China’s refinery go-slow have been more beneficial to tanker owners as Asian consumers have turned elsewhere for product. Earnings on TC1, the Baltic’s Mid East to Far East LR2 benchmark, soared from $9,094 on April 12 when VLCC earnings topped out, to $43,305 on April 29 and rose further in May to a peak of $64,444 on May 11, since when they have given up around 12% to land at $52,631 on May 18. TC5, the Baltic Exchange’s measure of earnings for the same route but on smaller LR1 ships, has shown a four-fold increase over the same dates, from $11,787 on April 12 to $44,074 on May 18. TC15, which measures earnings on Algeria-Japan, has shown similar improvements, rising from $-8,150 on April 12 to $5,183 on April 29 then on to $18,434 on May 18.

By contrast, Europe’s ban on Russian oil products has not led to an increase in rates for ships bringing gasoil to Rotterdam. MR tankers carrying gasoline from ARA to the US East Coast have done better.. US gasoline prices are over $4 a gallon in every state now, averaging $4.48, but this is not dampening demand which increased 3% week-on- week to May 16, as analysts say consumers can bear prices as high as $6 per gallon before they lift their feet off the throttle.

The hot LR2 market coincided nicely with a four-ship newbuilding order from Navios Maritime Partners, which is reported to have paid $58.5m each for the ships with five-year charters attached for the first couple. After a blank first quarter for crude oil tanker orders, there still have been none in the year to date. ●