As VLSFO prices continue a downward spiral, the tanker owner says unconsumed volumes it purchased last year and put into floating storage to mitigate against anticipated IMO 2020 price volatility will be subject to a mark to market valuation at the end of Q1 2020 and will ‘lead to a write down as the current market is significantly below the acquisition cost’.
As previously reported, last September, Euronav’s 441,561 DWT TI Oceania, one of only two ultra-large crude carriers in the world, was moved from Malta to Sungai Linggi in Malaysia and used for the storage of some 420,000 tonnes of low sulphur oil and marine gasoil.
The company paid $447 per metric tonne for the stockpiled low sulphur fuel over its purchase period, a $47 premium over the price of high sulphur fuel oil at the time. VLSFO prices, as with all bunker fuel grades, have plummeted since the start of the coronavirus outbreak and OPEC’s failure to secure agreement on crude oil production cutbacks. As Bunkerspot Price Index data illustrates, VLSFO prices per metric tonne at the ports of Rotterdam, Fujairah and Singapore were $510, $522 and $780 respectively at the beginning of October 2019 - so Euronav did purchase the low sulphur fuel at a beneficial price . As of today (1 April), prices in these named ports are are $211, $279 and $260, respectively.
In mid-March, it was also reported that commodity trader Glencore is chartering Euronav’s second ULCC Europe to provide floating storage for crude oil sthese stocks for a period of at least six months.
In commentary accompanying the release of its 2019 results yesterday (31 March), Euronav said that the floating storage had provide protection against very high fuel spreads during the IMO 2020 transition period but it noted that it is currently using cheaper feedstock from buying LSFO in the open market. The company said it will provide further details about this issue at the publication of its Q1 2020 results in May
Reviewing its operations in 2019, Euronav highlighted the tightening on the vessel supply side in the second half of the year, due to the removal of tonnage from the market because of sanctions on Iranian tonnage, the deployment of a significant number of large tankers as floating storage for low sulphur bunker fuel and the drydocking of vessels for scrubber installation, which in many cases had taken tonnage out of circulation for longer than had been anticipated.
Turning to the current situation for the tanker market, the company noted that rapidly increasing crude supply and a buoyant market for crude storage is underpinning a very robust tanker freight market and strong cash generation.
However, it highlighted that much of the crude oil currently being deployed and transported could end up in crude inventories. The build of oil stocks ‘could in the future impact the demand for the oil transportation sector and in particular the tanker markets,’ the company acknowledged, while noting that low crude costs will play out into lower marine fuel prices for owners and charterers.
Euronav reported a 2019 profit of $112 million, compared with a loss of $110 million in 2018. The company noted that the final result for 2019 was $7 million below the $119 million reported in its preliminary results at the end of January. The difference is largely due to the reversal of the capital gain on the sale and lease back of three VLCCs ($9.3 million) which had been fully factored in at the 2019 year-end but will now be spread over the lease term.