Fulford-Smith: No end in sight for oil price war tanker rally
Cheap oil plus demand destruction has created 'havoc in the supply chain,' the veteran broker said
Affinity (Shipping) head Richard Fulford-Smith isn't sure when the oil price war-boosted tanker rates will come back down to earth.
Speaking on a BTIG conference call featuring much of Affinity's tanker broking team Thursday, Fulford-Smith said tonne mile demand is tightening and that there could be an issue with the supply of ships in the next few weeks.
"The demand is not sucking it out," Fulford-Smith said of the oil in storage.
"So storage is full and this is something we cannot frankly tell you when it's going to end. That's in both the product market and the crude market."
Charterers, mostly commodities trading houses, have turned to floating storage across asset classes after Saudi Arabia flooded the market with cheap oil in early March, Affinity brokers said.
The cheap oil, made cheaper due to demand destruction from Covid-19, quickly filled up on-shore storage and the turn to tankers tightened the market.
"I think the situation that we're finding at the moment, almost embarrassingly, we're almost getting to the state when the product keeps coming, the crude keeps coming, the ships are getting loaded, and we've got a real problem" with the supply chain, Fulford-Smith said.
He added that the oil can stay in storage for however long it takes for demand to pick up "creating more havoc in the supply chain".
"For the shipowners, that's probably not the worst news," he said.
Thursday, the Baltic Dirty Tanker Index rose 18 points to 1102 and the Baltic Clean Tanker Index 31 points to 877.
Meanwhile, Kpler reported 17 product tankers — nine MRs, three LR1s and five LR2s — were being used as floating storage in northwest Europe.
The Affinity team said it was likely that the recent Opec+ cuts would fall short of their 9.7m barrel per day target, as cuts are not always complied with and can take time to set in.
The shipbroker cited a figure from Goldman Sachs that suggested the cut would settle closer to 4.7m barrels per day.
"If you look at the short term, unless we find out something in the next couple of days and Saudi can enforce these cuts immediately ... there's still a significant amount of oil, we still have a very short list and we still have a hell of a lot of tonnage (taken out of the market)," said Affinity VLCC spot broker Dan Cater.
Daniel Hockey, the shipbroker's head of clean tankers, said even more product tankers will be thrust into floating storage.
"The ships that we fixed before all of this don't have storage options," he said. "A lot of them are sitting there waiting for orders under demurrage.
"The market is still very, very active. Everything is looking up in our market at the moment."(Copyright)