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TANKERS: Americas VLCC freight plummets 28% as spot inquiry sees lull

Highlights

USGC-China VLCC freight at $11.5 million, down 28% on week

Floating storage demand dwindles on met charterer needs

16 laden VLCCs en route to the USGC from Saudi Arabia

New York — Freight for VLCCs loading on the US Gulf Coast fell more than 28% on the week Thursday as waning charterer interest has left tonnage availability wide open despite heavy tanker utilization for floating storage.

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"Chartering activity has finally caught up with the news headlines," a shipowner said Thursday. "We were hearing that the end of the world was here and no one was driving cars or buying crude, but ships were still moving and rates were still high. That's not the case anymore."

The cost of taking a VLCC on a USGC-China voyage was assessed Thursday at lump sum $11.5 million, down $1.5 million on day and $4.5 million on week. The USGC spot VLCC market has been untested over the past two weeks, with the activity seen on the route exclusively held by charterers taking their own tonnage.

A combination of crude demand destruction from the coronavirus pandemic and the 9.7 million b/d crude production cuts for May and June agreed upon by the OPEC+ alliance have greatly reduced the need to move crude on the water.

The closely connected Brazil export VLCC market set freight rates on a downward trajectory midweek after Petrogal booked the FPMC C Noble at w100 for a Brazil-China run, dropping w20 from where S&P Global Platts assessed the route Wednesday. The cargo received at least 11 offers from shipowners with ships willing to make the run, confirming expectations of a bearish market.

Further weakness Thursday in the Arab Gulf, a key global VLCC market, pushed market participants' ideas of tradable levels on USGC-loading VLCC routes to keep ships loading in the Americas competitive across all loading areas.

Ample interest in floating storage on tankers has started to dwindle as most charterers have met their desired storage needs into the coming months, a shipbroker said.

Floating storage demand has been lending support to freight rates across all ship classes, despite continued talk of demand destruction from the pandemic, especially in the VLCC segment, with rates for the USGC-China route reaching as high as $19.75 million on April 1, Platts data showed.

Waning storage availability and a steepening crude contango structure left crude buyers looking towards storing crude on tankers as the option began to show a payoff in the long run.

Ex-Saudi VLCCs en route to USGC

All eyes were on the horde of VLCCs laden with Saudi crude import cargoes headed to the USGC, with market participants contemplating the ships' ability to unload upon arrival with onshore storage capacity limited.

There are currently 16 laden VLCCs and five to 10 unladen VLCCs en route to the USGC and expected to arrive by the end of May, according to S&P Global Platts Analytics.

The Americas VLCC market could either see a further lengthening of the tonnage list in the region upon the unloading of the ships, one that does not typically see natural VLCC positions, or rates could remain balanced as the ships remain on the water.

"It really depends on how the ships headed this way react," a shipbroker said. "Everyone keeps saying they will be [available] but it would be risky I think to bank on that. There [will be] delays and discharging."