Tanker cashing diesel and petrol rake in the pain of a pump

As the first half of 2022 nears the end, transportation fortunes will vary. Container ships are the biggest winners in terms of profits, and product tankers are the biggest winners in the stock market.

Pump pain is in line with the boom of tanker owners carrying petroleum products.Fares and inventories Supported by the Ukraine-Russia War The same is true for post-COVID scrambling of diesel, gasoline and jet fuels.

apart from Recent stock market turmoilScorpio Tanker Stock (NYSE: STNGSo far, it’s still up 181%. The owner of the product tanker, Ardmore Shipping (NYSE: ASC) Increased 118%, Hafnia Tankers listed in Oslo increased 95%, Torm (NASDAQ: TRMD) 71%.

In contrast, the inventory of most container ships is declining year by year. Dry bulk stocks lost much of the 2022 rise this month.

ChartL Koyfin

War vs. Fundamentals

The question for product tanker investors is how much of this is about war and how much is fundamentals.

Evercore ISI analyst John Chapel said in a client note, “We are skeptical of the sustainability of the turnaround, given that recent strength is purely a function of the turmoil of Russia’s invasion of Ukraine. There are also people. “

“This is not a war,” Scorpio Tankers executives argued in a presentation hosted by Evercore ISI on Tuesday.

Lars Denker Nielsen, Scorpio Charter Officer, acknowledged that the changes in flow due to the war in Ukraine were having an impact.But he said, “Most of today’s market recovery is already underway before the war begins, and the real impact of redrawing the commodity trade map is. [due to the war] I haven’t come later this year yet. “

Scorpio has a long history of speaking the book. However, Chappell sees evidence of basic strength from channel checks elsewhere.

“After meeting with several commodity traders, oil majors, and rival shipowners over the past few weeks, [we see] The strong and accelerating demand for long-term charter contracts means that many industry players on either side of the charter desk believe that the strength of the current market is a great foothold. ” He said.

In the trade of product tankers, Chappell said that transportation costs were “always a small part of the cost of goods. Today, product tanker prices are approaching record highs and freight costs are still inferior to arbitrage. increase [arbitrages] Given the turmoil in trade and the shortage of regions, traders make from the movement of cargo. Traders need to move cargo and the price level of a product tanker rarely changes the profit calculation. “

The spot rate is well above the break-even point

“Product tankers continue to be outstanding performers,” asserted Frode Mørkedal, an analyst at Clarksons Platou Securities.

Wednesday’s Clarksons rate rating:

  • Built after 2015, modern large tankers for long-distance trade, known as LR2 (80,000-119,999 deadweight tonnage or DWT), earn a spot rate worth $ 62,900 per day. The average breakeven for this vessel is $ 25,000 per day. Crude oil tankers in this size category earn about half of the LR2 rate.
  • The latest LR1 (55,000-79,999 DWT) spot rate was $ 54,600 per day. The break-even point is $ 19,000.
  • MR (25,000-54,999 DWT) is mainly active in regional trade and is the main product of the product tanker business. Today’s MRs have a spot rate of $ 60,300 per day, more than three times the average breakeven of $ 18,000.

Banning tanker insurance raises questions

The possibility of a swift resolution of the war and a snapback to prewar supply relations between Russia and Europe and between the United States and the United Kingdom has diminished.

Earlier this month the EU agreed Stop offshore imports of crude oil from Russia by 5 December and stop refined products by 3 February 2023.. These measures are positive for tanker fees. Transport demand is measured in ton miles: quantity multiplied by distance. The EU import ban will increase the distance traveled by both Russian exports and EU alternative imports.

However, the EU’s decision also banned Russia’s crude oil and commodity cargo insurance and reinsurance going to other countries. The UK is expected to follow suit. If the insurance ban comes into effect, the cargo volume may be limited, which could be detrimental to the tonmile of the product tanker.

The brokerage firm BRS believes that the EU / UK ban on insurance / reinsurance “essentially bans mainstream tanker owners from carrying Russian oil.” Cargo shifts to Russia’s licensed tanker fleet and the so-called “shadow fleet”. The Shadow Fleet consists of old tankers with opaque ownership engaged in the licensed trade between Iran and Venezuela.

According to the BRS, the problem with Russia’s exports of clean (finished, sophisticated) exports is that there are not enough Russian-controlled tankers and shadow tankers to handle the load.

“Russia has a very small clean tanker fleet, whose LR vessels are almost exclusively dirty trading. [transporting fuel oil].. The small tanker is too small to be economical for long-distance transport of clean Russian products.

“On the other hand, Shadowfleet lifts crude or fuel oil almost exclusively, so these units are not suitable for clean products. This is for Russian clean products if insurance is banned. It suggests that exports will slow down little by little. “

Click on other articles by Greg Miller

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