A VLCC in happier times (source: Euronav)
Only two years ago, in April 2020, the headline was ’VLCC = very large cash cows’ with spot rates of US$200,000 per day. Today, VLCC spot rates are in negative territory
April 2020 was an exceptional month by any standard: the Covid pandemic was taking hold and crude oil demand was collapsing.
US land-based storage tanks were nearing maximum capacity, there were record imports of Saudi crude oil and a domestic over-supply of crude oil to demand led to the one-off negative US$/bbl, as derivative traders holding futures contracts for West Texas Intermediate crude oil for May 2022 delivery scrambled to avoid taking physical delivery.
April 2022 was totally different – VLCC earnings have largely been far below breakeven rates.
“At US$115M for a standard VLCC, an owner needs on average about US$33,500 per day for the next 20 years after delivery to break even on the investment,” reported Poten & Partners in its latest Poten Weekly Opinion.
The latest average earnings for a range of VLCC routes are a negative US$3,600 per day, according to the 13 May 2022 edition of Shipping Intelligence Weekly published by Clarksons Research Services (CRS).
For the latest eco scrubber-fitted VLCCs, CRS estimated earnings were in the region of US$12,300 per day, which is significantly higher than the average, but still below the required break even for justifying investing in new VLCCs.
This disconnect between scrubber-fitted, non-scrubber VLCCs and the switch in the VLCC trades to shorter hauls, has led some analysts to question the value of the VLCC routes that form the basis of the Baltic Exchange.
In its latest report, EA Gibson Shipbrokers noted, “The majority of VLCCs trading on the spot market are capable of generating higher returns than the benchmark Baltic Exchange VLCC description.”
With 2022 being one of the last years to see significant VLCC newbuilding deliveries, the profile of the VLCC fleet is changing.
“This begs the question, is it now time to assess benchmark VLCC earnings on a different basis?” asked EA Gibson Shipbrokers.
