Singapore-Fujairah delivered marine fuel 0.5% bunker spread widens to record $35/mt

In International Shipping News 28/04/2020

The Singapore delivered marine fuel 0.5% bunker price widened to a record premium of $35/mt to the same grade in Fujairah Friday as supply cancellations by embattled oil trader Hin Leong’s bunker arm Ocean Bunkering Services spurred a mild uptick in demand, S&P Global Platts data showed.

Platts assessed the Singapore delivered marine fuel 0.5% bunker price at $215/mt Friday, down $5/mt day on day and the Fujairah delivered marine fuel 0.5% bunker price at $180/mt, down $10/mt over the same period. The resulting $35/mt spread was the widest since Platts began assessing both grades on July 1, 2019.

In addition to demand from traders looking for replacement deliveries for OBS’ cancellations, market participants said they were seeing an overall improvement in demand in the week ended April 24.

“April demand has improved in part because China has ended its lockdown, so their vessels are moving around Asia again,” a Singapore-based bunker trader said.

Singapore’s commercial onshore residue stocks fell 9% week on week to 22.33 million barrels over April 16-22, latest Enterprise Singapore data showed. Market sources attributed the decrease largely to a recovery in bunker fuel demand.

Bunker fuel values at Fujairah are typically lower than in Singapore, although this flipped in January when barge availability in Fujairah was limited as shipowners stockpiled inventories after the International Maritime Organization’s 0.5% sulfur cap on marines fuels kicked in January 1. Fujairah’s bunker fuel prices averaged at a $10.47/mt premium to Singapore’s in the month.

“In January, you couldn’t get low sulfur bunker fuel in Fujairah even if you could pay. The deliveries in Fujairah were around 10-15 days out compared with 5-7 days in Singapore,” a UAE-based bunker trader said.

This flipped in February when bunker fuel in Singapore averaged at a $5.80/mt premium to Fujairah. February is a seasonal weak month for bunker sales as shippers typically procure sufficient inventories in January.

“There were some shippers who were replenishing inventories ahead of the Lunar New Year holiday and before the coronavirus pandemic spread [to Singapore] so there was some demand in Singapore even though February is usually a dull month,” a second Singapore-based bunker trader said.

The Singapore bunker premium to Fujairah averaged $2.36/mt in March even as the coronavirus pandemic eroded demand.

Looking ahead, market participants anticipate bunker demand in Singapore to remain supported and demand in Fujairah to be more variable.

“Demand in Fujairah has been erratic because there is still a lot of volatility in crude oil prices. At the same time, there are some traders who were on the sidelines because they did not want to offer any bunker fuel as there is no clear price direction,” a second UAE-based bunker trader said.

The second Singapore-based bunker trader said: “We are receiving more inquiries I expect April bunker sales to be slightly higher than in March.”

Source: Platts

China marine fuel markets get a boost from Singapore Hin Leong’s troubles

In International Shipping News 28/04/2020

China’s marine fuel market has in the recent days got a much-needed boost due to a rise in valuations for the product in Singapore, as Ocean Bunkering Services, the bunkering arm of embattled oil trader Hin Leong Trading and one of the city-state’s top suppliers, exited the market.

Marine fuel imported from Singapore accounts for most of China’s near 1 million mt/month bunker demand.
A firming of the retail market in the world’s largest ship refueling destination has helped lift spot market premium for IMO-compliant marine fuel at China’s major bunkering hubs of Shanghai and Zhoushan, said traders.

Since reports of financial trouble at Hin Leong started trickling in a little over two weeks ago, the Singapore-delivered Marine Fuel 0.5%S bunker premium to the benchmark Singapore Marine Fuel 0.5%S cargo rose to $29.13/mt Friday from a record low of $7.39/mt on April 9, S&P Global Platts data showed.

Reflecting this strength, the premium for Zhoushan and Shanghai-delivered 0.5%S marine fuel bunker to Singapore Marine Fuel 0.5%S cargo surged 53.79% week on week to average $14.21/mt in the week ended Friday, Platts data showed.

The spike in premium was a result of demand, which got a shot in the arm due to some demand shift away from Singapore to major bunkering hubs within the region, said traders. China bunker demand has only been limping back to normalcy in recent weeks after the coronavirus pandemic destroyed demand to the tune of at least a third in February and March.

“Since the Hin Leong debacle [started], we have seen a slight rise in demand. Shipowners who initially had plans to bunker at Singapore have diverted to our ports due to concerns over barge tightness and waiting time at Singapore,” said a Beijing-based trader at one of China’s largest bunker suppliers.

Meanwhile, even as demand had not yet returned to pre-COVID-19 levels, it has picked up, especially in the recent past, as prices at Shanghai and Zhoushan were competitive compared with other neighboring bunkering hubs like Ulsan and Busan in South Korea, and in Singapore, said traders.

The 0.5%S marine fuel delivered in Shanghai and Zhoushan has averaged $227/mt as compared with $249.35/mt for similar grades delivered in Ulsan and Busan in South Korea, and $232.40/mt in Singapore, Platts data showed.

China still relies on imports from Singapore to meet the lion’s share of its demand , even as Chinese refiners ramped up IMO-compliant marine fuel production since Beijing implemented February 1 a rebate on value added tax and consumption tax on domestically produced low sulfur marine fuel for use as bonded bunker.

“Imports have decreased, but not substantially. Crude is at an all-time low and suppliers are bringing in [marine] fuel to store and sell when prices recover,” said the trader.

Hin Leong’s bunkering arm Ocean Bunkering Services, which is one of the top three bunker suppliers in Singapore, canceled all its bunker sales for delivery from April 18, Platts reported April 17 quoting the companies’ counterparties and traders.

Hin Leong and its bunkering and shipping arms together own and operate at least a couple of dozen or more bunker barges, accounting for a near 15% of the total Maritime and Port Authority of Singapore-licensed bunker barges in Singapore.

Source: Platts

Overzealous Valuation and Global Pandemic Bad for Offshore Market

In International Shipping News 28/04/2020

The last five years have been one of the longest and most challenging downturns the offshore industry has ever experienced. Since the oil price drop of 2014/2015, the Offshore vessel market has been plagued by bankruptcies, consolidations, takeovers and mergers, forced fleet sales and most importantly a significant decrease in asset values.

Values

VesselsValue has always been conservative in terms of Offshore asset values compared to their competitors. In January 2019, Solstad Offshore were requested to revalue their fleet by Norwegian financial authority Finanstilsynet. At that time VesselsValue estimated the value of a five-year-old large PSV at USD 13.7 mil, down almost 22% year to date from USD 17.5 mil. By comparison other valuation providers were quoting valuations 20% higher.

In the months that followed, others believed the value of a five-year-old large PSV increased from c. USD 16 mil to c. USD 19 mil. By comparison, VesselsValue figures increase from USD 13.5 mil to USD 14.1 mil.

There were very few transactions within the market during this period to support such an aggressive increase. However, the market was seeing some positivity, both a stable and relatively high oil price, vessel rates increasing, layup figures decreasing, and handful of ships sold for demolition.

The VV algorithms use a combination of long and short-term rolling averages of the Brent Crude oil price to model sentiment in the absence of transactions. This is effective because the VV sentiment does not overreact to any short-term knee-jerk effects witnessed in the market unless there are enough supporting sale and purchase transactions to justify this.

2019 was not a bad year for the Offshore industry, however VV has always argued based on their data, and valuations that the market was not experiencing the upturn others believed.

2020 has seen the Covid 19 global pandemic and a significant decline in oil price. Tuesday 21st April saw Brent crude drop below USD 16/barrel, a 21-year all-time low. To put this into perspective, the lowest recorded oil price in last crisis was USD 23/barrel.

On the 31st March 2020 Solstad Offshore announced they has entered financial restructuring, citing Covid 19 and the continued poor Offshore market conditions. Such a large Norwegian Offshore owner entering restructuring is an important milestone for the sector. As of 23rd April 2020 VesselsValue values the Solstad fleet at USD 1,483.9 bil. See below table.

Forced removals

A condition of Solstad’s restructuring deal is they must remove 37 vessels. Although the exact vessels to be sold are not yet known, it will most likely be the laid up, older smaller units.

Utilising VesselsValue fleet search and recency of AIS function, VesselsValue are able filter PSVs, AHTs and OCVs within the Solstad fleet that have not signalled in 1 week or more, i.e. are inactive / laid up. These 34 vessels could represent a large portion of the possible 37 sales candidates.

Please note:

1) Demolition value is based on vessels LDT current price for steel Indian Subcontinent
2) VesselsValue assumes vessels are in seaworthy condition and fair survey position.

If Solstad were to remove all the 34 outlined vessels from their fleet, the new VesselsValue fleet value would be USD 1,362.8 bil. See below.

The Future
It is unknown how long this current economic situation will last, but what is known is that the Offshore industry is in retraction and the outlook will be extremely testing for everyone from oil majors to small service providers and all those in between. All signs points to another period of restructuring, forced vessel sales, mergers and consolidations and therefore declining asset values. As always with periods of austerity, data driven valuations are critical to keep the market moving forward and prevent it from making the same mistakes of the past.

Source: VesselsValue

Tanker rates will hit the roof if producers outside OPEC+ fail to curb output in 2Q20

In International Shipping News 17/04/2020

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he recent cut in oil production by OPEC and its non-OPEC allies (OPEC+) is insufficient to balance the oil market, considering a sharp decline of 23 mbpd in demand in 2Q20 because of the COVID-19 outbreak.

OPEC+ has finally managed to reach a historic agreement to cut production by 9.7 mbpd in May-June 2020. The production cut will then taper to 7.7 mbpd in 2H20 before finally declining to 5.8 mbpd from January 2021 until March 2022. As major oil producers outside OPEC+ have refrained from any official commitment to cut production, the extent of oversupply in the market will hinge on the organic decline in unconventional oil production in the US and Canada.

According to IEA, oil demand will decline 29 mbpd (Y-o-Y) in April, which will lead to inventory build-up of over 28.7 million bpd before the production cut begins on 1 May. This oversupply will boost onshore stocking activity, commercial as well as SPR build-up, supporting tonnage demand in the crude tanker market.

But if oil production outside OPEC+ fails to observe a significant decline in production, the market will be in surplus by more than 20 mbpd in May and 9 mbpd in June, despite the production cut by OPEC+.

In such a scenario estimated spare onshore storage capacity of about 1-1.3 billion barrels at the beginning of 2Q20 will be exhausted by the end of May. This, in turn, will inflate the demand for floating storage towards the end of the quarter and surplus oil will absorb about 4-5 VLCCs per day in June. Additionally, as oversupply will cap any surge in oil prices in 2Q20, most of the 55 VLCCs and 24 Suezmaxes currently locked in floating storage are unlikely to return to active trade before any possible recovery in oil demand and prices in 3Q20. In such circumstances freight rates in the crude tanker market will hit the roof, as a rise in floating storage will squeeze tonnage supply even further.

However, if oil production in countries outside OPEC+ declines by about 3.5 mbpd and countries such as South Korea, India, China and the US increase SPR by around 200 million barrels, the available spare onshore storage capacity will probably manage to absorb excess supply from the market. In this proves to be the case freight rates in the crude tanker market will decline significantly in May-June from current levels.

Source: Drewry

Tankers Could Face Headwinds in May

In Hellenic Shipping News 17/04/2020

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anker owners could be hit with lower demand for their vessels in a few weeks’ time. In its latest weekly report, shipbroker Intermodal said that “as everyone anticipated the results of the OPEC + G20 meeting last week, it was very interesting to watch the reaction of tanker rates that were in a bull run lately. Amidst an oversupplied oil market and expectations of production cuts and consequent oil price hikes, the large contango effect has made profitable several storage plays during the past couple of months, occupying a lot of ships as a result, while in addition to that, several countries decided (amid bottoming oil prices and the Coronavirus pandemic emergency) to increase to the maximum their strategic petroleum reserves (e.g. the US SPR already has 634 million barrels in storage vs. a total capacity of 713 million barrels)”.

Source: Intermodal

Intermodal’s SnP broker, Mr. Ilias M. Lalaounis said that “key stakeholders in the industry created an additional hype by characterizing this meeting as one of the most important and historic events in the last two decades, creating expectations that any deal would lead to a further spike in short-term activity. There were of course also some less optimistic voices in the industry insisting that deal or no-deal the tanker market remained fundamentally weak in the long term, with the pandemic restrictive measures around the world already leading to a 25-35 million b/d or 30% decrease in demand. Following the end of the meeting, OPEC+ announced output cuts of 9.7m b/d for May and June, 8m b/d for the remainder of 2020 and 6 million b/d for the period January 2021-April 2022. The record cuts we are about to witness in the next couple of months are almost equal to 10% of global supply, while together with non-OPEC+ member cuts the figure could even reach the equivalent of 1/5 of global supply”.

“This means that May onwards cargo loadings will definitely see significant declines and this will most likely have a negative impact on the tanker freight market. Because of this expectation, we could possibly see producing countries trying to pump out as much product as possible before the agreement enters into effect, which could offer some support to the tanker market before we reach May 1st”, Lalaounis said.

According to Intermodal’s broker, “looking further ahead and as “expecting the unexpected” is something everyone must have gotten used to by now, I’d say that there are a few possible scenarios in which neither the oil market dries up, nor prices manage to stabilize at much higher levels and push freights down. We have seen many times during previous output cuts that there have been some non-compliant members and we won’t be surprised to see certain producing countries eventually ramping up production above what was agreed this time as well”.

Source: Intermodal

Lalaounis concluded that “not only would such a development restore part of the cargoes lost, but it would also cause great dissatisfaction to compliant members that would start losing market share due to non-compliance and this could eventually lead to a new price war as a result. In addition to that, global demand for oil will gradually begin to increase as countries around the world eventually start to exit the pandemic emergency state and return to normality, while let’s not forget the amount of tonnage that has been used for storage and will not be competing for business in the tanker market”.

Source: Nikos Roussanoglou, Hellenic Shipping News Worldwide