Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

China strategic storage offshore driving tanker rates higher

China strategic storage offshore driving tanker rates higher
With Chinese players Unipec and Petrochina being revealed as the biggest VLCC charterers last year and record crude imports in December of 7.2m barrels per day, China demand is driving the dirty tanker market higher, to the delight of owners in Hong Kong and the Mainland.

This additional demand is on top of the reported already huge take-up of VLCC for floating storage globally. Reuters reported last week traders had booked large tanker capacity to store some 25m barrels with this level is to increase further in coming weeks.

“This is very positive for the market,” said one tanker analyst. “China’s strategic storage tanks onshore are not that big so at least a decent proportion of the imports must be stored at sea,” he added.

The analyst noted that as long as the oil price stays low, rates will rise still rise more from current levels or at least stabilize at current good levels. “We can see a positive tanker market ahead with the general sentiment very optimistic about the tanker market this year,” he concluded.

Most major trading firms such as Trafigura, Vitol, Gunvor, Koch as well as oil major Shell have started booking oil tankers for floating storage for up to the next year, reports said.

With oil prices hovering in the mid-$40 range, traders are piling into what is known as a contango play, where oil prices for delivery in the future are trading at a premium to those in the spot market. Simple maths shows for every $1 rise in oil price, a VLCC load makers roughly $2m. Traders last used this play in 2009 when oil prices similarly slumped and led to some 100m barrels of oil being stored offshore.

As a result, average daily earnings for VLCCs have risen to over $84,000 a day, from around $63,000 at the beginning of the year, inching closer to the $100,00 levels seen before he market crashed in 2008.

Chinese shipping companies likely to benefit from this include China Shipping Development’s tanker arm, CSDC, whose older tankers could be used for “speculative storage.”

Analysts have noted the recent rally in tanker rates alongside a simultaneous the sell-off in crude oil, and have revised up earnings forecasts for the tanker business for 2015 and 2016 by 60% and 32% respectively.