Poten & Partners has reported that we could be seeing more crude oil being held in in floating storage, as the market comes to terms with the coronavirus-led plunge in oil prices and demand.
Following the failure of OPEC to agree a deal on additional output cuts last week, crude oil prices crashed by around 30% and the market is oversupplied.
According to the latest weekly Poten Tanker Opinion: ‘Floating storage will be profitable if the 12-month spread is higher than the cost of the vessel and the interest charges for storing the crude. We are not there yet, but the economics are moving in the right direction.’
Even before last week’s inconclusive OPEC meeting, Poten & Partners reported in its Tanker Opinion on 28 February that: ‘Anecdotal information from market sources seems to suggest that floating storage of crude oil is on the rise, in particular around Malaysia/Singapore and offshore China.’
Poten explained how the trend is building up: ‘As demand is falling and storage tanks are filling up, charterers don’t need some of the oil that is heading their way and they have to improvise. Some charterers are trying to sell the oil and, if successful, the vessel and the oil will be rerouted to another destination. Others will anchor the vessel, waiting for onshore tank storage to become available.
'Most of the vessels that have arrived in the Far East in the last two weeks were fixed in late 2019 or early 2020 at very high freight rates which included healthy demurrage rates. This encourages the charterers to transfer the crude oil to a cheaper vessel and use the latter vessel for temporary floating storage.'