VLCC Floating Storage Set to Dwindle

March 6, 2017

The number of very large crude carriers (VLCC) engaged in non-trading activities, primarily Iranian/non-Iranian crude storage and fuel oil storage, has started to slip, according to the latest tanker report from Gibson Shipbrokers.

Namely, at the end of February, 45 VLCCs were involved in various non-trading activities, down from an average of 52 units seen between July 2016 and January 2017, the report figures show. As indicated, Iranian crude storage has started to decline rapidly a few months ago but up until February this was offset by robust non – Iranian crude storage.

Despite the latest drop, VLCC floating storage remains substantial, representing around 6.5% of the global VLCC fleet. However, Gibson predicts that the downward trend is likely to continue, bringing bad news for VLCC owners in the short term.

This is further prompted by the return of the National Iranian Tanker Company (NITC) ships to the international market following the sanctions lifting. In addition, the anticipated drawdown in stocks and flirtation with backwardation makes it less attractive to use tankers for storage, Gibson Shipbrokers said.

The development comes following OPEC’s decision in November 2016 to cut production by nearly 1.8 million b/d, with the aim of rebalancing the oil markets and reducing massive oil inventories, accumulated in recent years.

“Although this strategy will support prompt oil prices, drawdown in stocks and easing forward oil prices threaten floating storage,” the report reads.

In January, the Middle East OPEC crude production fell by a colossal 1 million b/d compared to December levels, data from the International Energy Agency show, and initial Reuters estimates indicate that these cuts were somewhat further reinforced in February.

“As the Middle East is by far the largest market for VLCCs, the decline in crude exports at a time of rapid growth in fleet size is starting to hurt tanker owners. VLCC spot TCE earnings on the benchmark Middle East – Japan route started March at around USD 20,000/day, down gradually from USD 50,000/day in early January,” the report further reads.