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Uncertainty in oil market supports MR freight strength globally: Ardmore

Highlights

20% global tankers in floating storage supporting freight

MR TCEs earnings reach $70,000/d, current average $28,200/d

Freight strength could continue into end-2020

Houston — Uncertainty in the oil market amid cheap crude prices and the demand drop for petroleum products as a result of the coronavirus pandemic supported global freight for clean tankers in April, Ardmore Shipping CEO Anthony Gurnee said Tuesday during the company's first-quarter earnings call.

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"The fact the tanker market is soaring at a time when virtually every other industry is suffering is not illogical; shipping rates typically strengthen with volatility and disruption," Gurnee said.

Ardmore's Medium Range voyages in progress or the last three weeks earned time charter equivalent rates of $28,200/d, up 45% from the first-quarter average TCEs at $19,307/d.

Earnings reached as high as $72,000/d for an MR booked last week on a 55-day voyage. This dramatic increase in rates for MRs was due in part to the tightening of tonnage globally, with around 20% of the global tanker fleet being used as floating storage, according to the International Energy Agency Oil Market Report referenced in Ardmore's earnings presentation.

Gurnee said the percentage of the global fleet used for floating storage could increase going forward into 2020, with oversupply of petroleum products to continue into the second quarter and beyond without a decrease in refinery throughput.

Gurnee said that longer voyages, which increases ton-mile demand and have been lengthened by some requests to steam slower to destinations, and other disruptions, including discharge delays, are supporting the clean tanker market right now.

However, due to a lull in fixing activity in the last two weeks in Europe and the Americas, freight has fallen for MRs. Since the spike in freight in late April, the 38,000-mt US Gulf Coast-UK/Continent route has fallen 35% from $54.78/mt on April 27 -- a record high since the launch of the S&P Global Platts assessment in 2012 -- to $35.14/mt Tuesday.

Recent TCEs stand at an average of $28,200/d, still an increase from the Q1 average earnings, according to Gurnee. On the 38,000-mt USGC-UKC route Tuesday, TCE levels were heard around $30,000/d for fuel-efficient ECO MRs fitted with scrubber systems and around $28,500 for ECO MRs without scrubber systems.

However in the Persian Gulf region, where cargo inquiry has not fallen off as dramatically as in the European and Americas markets, Gurnee said that MRs could still achieve TCE rates above $50,000.

For the rest of the year, demand for petroleum products is expected to pick up with seasonality in the fourth quarter, and as effects from the coronavirus pandemic subside and stay-home orders ease.

"If and when oil demand rebounds with an economic recovery sometime in the third quarter as the IEA are forecasting, we would expect more demand-driven volatility, potentially carrying into the winter," Gurnee said.

Recent clean tanker futures contracts for the fourth quarter of 2020 are indicated at around $19/mt for the 38,000-mt USGC-UKC route compared to contracts traded near $26/mt for May, according to a shipbroker.