Poten says some crude tanker earnings are in negative territory

Written by Nick Blenkey
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Source: Poten & Partners

The latest weekly Tanker Opinon from Poten & Partners notes that 2021 is “not off to a great start.” While usually, the winter months are good for tanker rates, that’s not the case this year.

“A review of the daily market rates shows low Worldscale (WS) assessments, which lead to very low TCE (time charter equivalent) earnings. Some earnings, particularly in the crude oil segment, are even dipping into negative territory. VLCCs, Suezmaxes and Aframaxes all show negative TCE’s on one or more of the benchmark routes,” says Poten.

Negative tanker earnings occur when voyage costs (bunker costs, port expenses and canal fees) are higher than the freight revenues that an owner receives.

‘While this is an extreme situation (and unsustainable in the longer term), it can happen on occasion for a number of reasons,” says Poten. The most common reason is that the owner takes a loss on a backhaul voyage to position the vessel for a more lucrative subsequent trip. An example of this are the negative earnings on the AG-USG route. For many years now, this is considered a backhaul route that can position your VLCC for a trip from the USG to Asia, which is a premium voyage. Rather than ballast a vessel to the USG and have no revenues, it is better to get paid something for the trip into the Atlantic, even if it doesn’t pay for all your expenses. Owners may also be willing to accept negative earnings when their vessel has issues with expiring certifications, which reduces their trading flexibility.”

Poten says, “the main underlying reasons for the weak start of the year are clear: low tanker demand combined with too many ships. Oil and tanker demand will remain challenging, at least through the first half of 2021 and maybe longer.”

When does Poten expect things to pick up?

  • Read the rest of the Weekly Opinion HERE
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