International Seaways capitalizes on strong period tanker market, despite Q4 destocking

New York —

Crude and products tanker company International Seaways posted a solid third-quarter net income of $14 million compared to a net loss of $11 million during Q3 2019, as the company continued to benefit from strong VLCC time charter contract coverage concluded during March through May, when pandemic oil market economics prompted significant demand for floating storage.

"Our sizable fleet of crude and product tankers performed well during the quarter, and the four favorable time charters we executed earlier this year at very strong rates were instrumental in enabling us to optimize revenue during the current period of oil inventory destocking," president and CEO Lois Zabrocky said during the company's Q3 earnings call on Nov. 6.

International Seaways executed VLCC time charter contracts for a three-year term for the Seaways Kilimanjaro at $45,000/d, a one-year contract at $53,000/d for the Seaways Tanabe and two seven-month periods at an average rate of $100,000/d at the end of Q1 and the beginning of Q2.

Thanks to these solid period charters, the company's Q3 time charter revenue averaged $73,400/d, when spot market time charter equivalent earnings were recorded at an average of $35,700. In Q4 VLCC time charter earnings slipped 13.2% to an average of $63,700/d. Yet spot VLCC time charter equivalent earnings fell 45% to an average of $19,600/d for 59% of available spot days in Q4 from an average of $35,700/d in Q3.

Spot trades on the benchmark VLCC US Gulf Coast-China transacted at lump sum $4.5 million to $4.65 million since the start of Q4, values not seen since May 2018, according to S&P Global Platts data. Freight for the benchmark VLCC Persian Gulf-China route ranged at between at Worldscale 26.5 to w30.5 since Oct. 1, levels not seen since the summer of 2016.

Destocking to depress Q4 tanker markets

Weak tanker markets are here to stay through to the end of the year as structural oversupply continues on both the oil and tanker markets amid significant destocking, according to market sources.

"We continue to see the drawdown and the unwinding of storage," Zabrocky said. "There will be a few months of pain and then we will see increased demand. As ships have unwound, they have taken the additional barrels on the market."

The International Energy Agency estimates oil demand at 98.8 million b/d by the end of next year, up 2.7 million b/d from the expected 96.1 million b/d level for Q4 2020, and anticipates a 4 million b/d stock draw, alleviating the surplus built during Q2 this year.

S&P Global Platts Analytics sees bloated global inventories and slowing demand recovery and expects OPEC+ to extend current production quotas into Q1 2021, rather than tapering by 1.9 million b/d in January as currently scheduled.

Low order book, recycling set stage for tanker recovery

"Moving forward, we remain positive on the long-term outlook of the tanker market," Zabrocky said, looking at an order book that has declined to historical lows, as decarbonization challenges temper new ordering when significant capital expenditures are required for new propulsion systems. The low order book together with an expected increase in recycling at current low freight rates and oil stock drawdowns are setting the stage for a tanker recovery. New building contracts for the global tanker fleet expressed as a percentage share of the order book amount to 7.1% for VLCCs, 10.5% for Suezmaxes, 9.4% for Aframax/Long Range 2, 13.1% for Panamax/Long Range 1 and 6.7% for Medium Range tankers, according to the company's earnings presentation.

International Seaways owns and operates a fleet of 39 vessels, including 13 VLCCs, two Suezmaxes, five Aframaxes/LR2s, 13 Panamaxes/LR1s and 4 MR tankers.