Bangladesh, India, Pakistan to see booming trade as dip in oil shipping leaves tankers empty

Category:

Saudi & other producers are keeping millions of oil barrels off the market, leaving supertankers unemployed and likely to be junked on the beaches India, Pakistan & Bangladesh.

 and  25 January, 2021

The impounded Iranian crude oil tanker, Grace 1, sits anchored off the coast of Gibraltar | Photographer: Marcelo del Pozo | Bloomberg
The impounded Iranian crude oil tanker, Grace 1, sits anchored off the coast of Gibraltar (Representational image) | Photographer: Marcelo del Pozo | Bloomberg

London: Covid-19 is destroying the market for supertankers that deliver about a fifth of the world’s crude oil. The result is likely to be booming trade on the beaches of Bangladesh, India and Pakistan, where obsolete ships go to get blow-torched and sold for scrap.

Last week, the 1,200-foot vessels plying the industry’s busiest trade route — from the Middle East to Asia — effectively had to subsidize the delivery of cargoes because of how large the surplus of ships has grown.

While the vessel glut has really been in place since when Covid-19 caused oil demand to collapse early last year, it has until recently been masked by a huge chunk of the fleet storing crude that was previously surplus to requirements. Now, with Saudi Arabia and other major producers keeping millions of barrels off the market, and consumption stronger, those stored cargoes are being snapped up again — leaving the tankers unemployed.

“It is hard to imagine a set of circumstances that is more against tanker owners than the ones at the moment,” said Brian Gallagher, head of investor relations at Euronav NV, owner of the world’s third-largest fleet of supertankers. “When you have scrap prices at these levels that’s very attractive, it changes the dynamic for owners of older tonnage.”

That will see more of the vessels sent to the world’s scrapyards, according to multiple conversations with tanker-company executives, many of whom didn’t want to discuss publicly how challenging the market has become. Clarkson Research Services Ltd., a unit of the world’s largest shipbroker, expects about 2% of the fleet to get demolished in 2021, up from almost none for the past two years. Its forecast was made before the slump into negative rates.

The scrapping may not be enough to save the market in the coming months. The amount of oil being shipped at sea remains far below normal levels as OPEC and its allies continue to withhold huge volumes of production and vessels that were used as storage during the oil market’s mammoth 2020 glut are now coming back onto the market and looking for business.

More importantly, scrapping is typically seen as a tactic that stops the rot. It doesn’t usually drive a surge in rates. On Wednesday, daily earnings for supertankers sailing on the benchmark Middle East to China route were -$1,190, according to figures from the Baltic Exchange in London.

The Baltic’s numbers assume fixed costs for a vessel, which can be mitigated. For example fuel costs can vary and ships are able to slow down to limit their consumption. Several of the tanker owners said they were doing this when sailing back to the Middle East for cargoes.

The Baltic’s numbers assume fixed costs for a vessel, which can be mitigated. For example fuel costs can vary and ships are able to slow down to limit their consumption. Several of the tanker owners said they were doing this when sailing back to the Middle East for cargoes.

Source: The Print