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Highlights

USGC VLCC freight up 11%, sees boost from AG market

USGC light sweet crude structure offers potential contango play

Charterers show interest in mid-size tankers

Houston — Rising demand for floating storage boosted freight rates for tankers carrying crude out of the Americas on Tuesday as prices for prompt US light sweet barrels were pressured by onshore storage constraints and a runaway supply overhang.

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Charterers were left at the mercy of shipowners for storage opportunities as the crude contango structure steepened and as the Persian Gulf saw an influx of cargo inquiries with Tuesday's announcement of Saudi Arabian crude cargo stem nominations for May, sources said.

"With TD3C (270,000 mt Persian Gulf-China route) where it is, owners can do whatever they like," a shipbroker said. "Throw in the storage bankruptcy and it's all very good if you are a tanker owner for now."

The cost of taking a VLCC on a US Gulf Coast-China voyage was assessed at lump sum $17 million Tuesday, on a 270,000 mt basis, up $1.7 million, or 11%, day on day, and 13.3% week on week.

The NYMEX WTI May futures recovered to expire at $10.01/b at the Houston close Tuesday, after falling to negative $37.63/b Monday, an all-time low for the prompt-month contract amid fears of May barrels filling tanks to the brim in Cushing, Oklahoma.

In recent weeks, crude sources have noted a continued slump in spot physical cargo trading activity, citing global supply and demand shocks brought on by the global spread of the coronavirus pandemic and the ensuing dispute over production cuts between Russia and Saudi Arabia.

The sparring was resolved through an agreement to output cuts of 9.7 million b/d, but lasting impacts from the resulting supply overhang have continued to take a toll on the petroleum complex. Still, crude supplies continue to be higher as producers rush to shut-in wells and lingering barrels from the output dispute make their way to the USGC.

Meanwhile, pressure on values of crude along the USGC grows as more Saudi Arabian crude carriers appear to be on the way, adding to the pileup of Middle Eastern crude without a buyer in the Gulf of Mexico.

Currently some 12 laden VLCCs heading to the USGC and expected to arrive between April 24-May 21 after loading at Ras Tanura, according to S&P Global Platts analytics and cFlow. It is unclear if all 12 tankers will be able to unload upon arrival due to storage constraints. Three Saudi Arabian-flagged VLCCs were observed on the USGC Tuesday morning, believed to be laden.

FLOATING STORAGE PAYOFF?

In the spot physical cargo market, West Texas Intermediate crude offered along the USGC was assessed at a $5.26/b, or $38.92/mt discount to the 15- to 45-day forward Dated Brent strip, having risen $3.75/b from an all-time low Monday in tandem with the NYMEX May WTI weakness.

Floating storage costs are more than paid-off, with the NYMEX WTI May carry between the May and October contracts settled at $15.55/b, or $115.07/mt, Tuesday.

A typical storage play is booked on larger tonnage VLCCs, with a six-month minimum time charter agreement booked at $86,000/day last week, however, sources talked of possible next done levels on storage deals in a range of $110,000/day to $140,000/day Tuesday, or $73.33/mt-$93.33/mt, and for 180 days above the $200,000/day level, or $22.22/mt, for shorter 30-day charters, with the USGC region possibly demanding higher earnings.

"A [VLCC] open in the USGC can make around [$200,000/day] for 70+ days on a spot charter so why bother with a potentially short period and less money," a shipowner said.

CHARTER INTEREST IN MID-SIZE TANKERS

Charterer interest has shifted into mid-size tankers for storage as rates have become marginally more favorable, along with convenient positioning and availability in specific regions like the Mediterranean and West Africa. Additionally, Suezmaxes tend to have heating coils unlike their larger VLCC counterparts, making them even more favorable to charterers, sources said.

"There has been an uptick in storage inquiries, more people asking questions," a Suezmax shipowner said Tuesday. "No one seems to be committing just yet."

Six-month floating storage contracts were last done at $55,000/day or $76.15/mt per 180 days, with owner indications moving to the $57,500/day to $65,000/day or $79.62/mt to $90.00/mt for 180 days range to start the week, all basis 130,000 mt stored. Charterers have been heard bidding Aframaxes for 30-180 day storage plays at $45,000/day or at $90/mt for 180 days basis 90,000 mt stored.