If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up 'cheap' oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China's record crude imports have ceased).
In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago...
China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners.
China's crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show.
China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher.
But given the crash in tanker rates - and implicitly demand - that "boom" appears to be over.
Shipbroker analysts blame fewer January cargoes and oil companies using their own vessels for shipment as the main reasons for the dramatic decline. As Bloomberg adds,
Oil tanker earnings boomed thanks to the very thing that drove down crude prices: an abundance of supply that made ship-fuel cheaper and shipments plentiful. This month, shipbrokers report a slump in spot cargoes from the Middle East.
While they say it would be premature to suggest that has implications for the region’s output, the plunge in rates shows just how sensitive owners are to monthly fluctuations in shipments.
The good news after all this carnage is that, even before today's plunge, collapsing tanker rates were already pushing economics for floating storage (the carry trade) closer to be proditable.