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Tankers, geopolitics and sanctions

All of the shipping sectors have come up against ‘geopolitics’ during 2019, which is now moving into Q4, historically a time of seasonal market strength and sees the two forces combining.

The tanker markets, already bubbling upward as a result of the issues surrounding the Grace 1 and Stena Impero detentions in Gibraltar and Bandar Abbas, took a giant leap upward as the US imposed sanctions on two Cosco entities tied to alleged movements of Iranian oil late last week.

The two entities targeted were Cosco Shipping Tanker (Dalian) Co, Ltd and its subsidiary, Cosco Shipping Tanker (Dalian) Seaman & Ship Management Co, Ltd. The impacts upended the VLCC markets, where Cosco’s fleet numbered upwards of three dozen vessels - the majority of which were VLCCs. Many of the vessels were engaged in Arabian Gulf to Asia trades, but, irrespective of loading area- charterers were reluctant to run afoul of US sanctions.

Read more: Cosco Shipping units hit by US sanctions, tanker rates spike

Tanker rates had taken a sharp upwards turn. Jefferies analyst Randy Giveans, who has held a positive view on this sector of shipping, told his clients: “Last week, average VLCC spot charter rates rallied 33% to $60,000 per day”.

The impacts on the tanker arena came at a time that other impacts had reduced supply and increased demand: He wrote further, “In addition to the Saudi attacks, ships leaving service for scrubber retrofits, refinery maintenance season ending, and inventory building, this is yet another reason we expect rates to improve in 4Q19.” Clearly, the forward physical curve shows that VLCC hires are already spiking to levels above longer term expectations with Clarksons Research pegging one year TC’s around $37,000 per day and three year deals at around $30,000 per day.

But the impacts of these new sanctions have ricocheted onward into the LNG tanker markets. Teekay group company Teekay LNG is linked, through a chain of subsidiary ownership structures for six vessels (four on the water, two under construction), to Cosco Shipping Tanker (Dalian) Co.

The latter is a 50% owner of the shipowning entity Cosco LNG (CLNG)- Teekay’s partner in the joint venture company, Yamal LNG, taking LNG to Europe and (during the summer months) via the Northern Sea route to Asia. Teekay explained: “As a result of CLNG’s 50% interest, the Yamal LNG Joint Venture also currently qualifies as a “Blocked Person” under OFAC  rules.”

Teekay, meanwhile, cancelled an Investor conference set for early October in New York while it was trying to sort out the legalities and its next steps. In a brief, largely content free, conference call on Monday, Teekay explained that it was working hard to find solutions, but could not get into specifics.