Bulls Beware: Soaring Tanker Rates Show Supply Glut Persists

By Naomi Christie and Bill Lehane

(Bloomberg) — Four months into oil’s rebound from a six- yr low, the tanker market is sending a transparent sign that the rally is underneath menace.

A sudden surge in demand for supertankers drove benchmark constitution charges 57 % larger within the two weeks via May 20. OPEC may have virtually half a billion barrels of oil in transit to patrons at first of June, probably the most this yr, whereas analysts say about 20 million barrels is being saved on ships in one other indication the glut has but to dissipate.

The Organization of Petroleum Exporting Countries is pumping probably the most oil in additional than two years, decided to defend market share fairly than costs. A document minimize to the variety of lively U.S. drilling rigs and billions of {dollars} of spending reductions by firms since final yr’s worth plunge has but to translate right into a stoop in barrels produced. The world is pumping about 1.9 million barrels a day extra crude than it wants, in accordance with Goldman Sachs Group Inc.

“Supply of oil continues to build,” stated Paddy Rodgers, the chief govt officer of Antwerp, Belgium-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19.

Daily charges for supertankers on the business’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, in accordance with the Baltic Exchange in London. While charges since retreated to $64,710, they’re nonetheless the very best for this time of yr since not less than 2008.

Brent crude futures superior 37 % from this yr’s low on Jan. 13, and traded at $62.09 a barrel on the London- primarily based ICE Futures Europe alternate at 5:41 p.m. native time Thursday.

Increasing Exports

OPEC’s 12 members may have 485 million barrels of oil in transit to patrons within the 4 weeks to June 6, probably the most since November, Roy Mason, founding father of Oil Movements, a Halifax, England-based firm monitoring the flows, stated by e-mail Wednesday.

Iraq, the group’s second-largest producer, plans to spice up exports to a document 3.75 million barrels a day subsequent month, in accordance with delivery applications.

Spare tanker capability within the Middle East has seldom been tighter. The mixed extra of ships competing for the area’s exports stood at 6 % final week, the bottom for the time of yr in Bloomberg surveys of shipbrokers that began in 2009. While that expanded to 12 % this week, the month-to-month common was nonetheless the bottom on document for May.

Bullish oil merchants might get some consolation from the U.S. Recent drops in oil inventories there are signaling a gradual easing of the glut, Paul Horsnell and different Standard Chartered Plc analysts wrote in a report May 26. It might take not less than one other quarter for the excess to vanish, they wrote.

Physical Activity

“There still seems to be a lot of physical activity, a lot of oil on the water,” Nigel Prentis, the top of analysis at Hartland Shipping Ltd. in London, stated by telephone May 19. While the second quarter is normally quieter as refineries change to summer time fuels for the Northern Hemisphere, “the market is still busy and rates are incredibly high,” he stated.

Supertankers in a position to haul about 2 million barrels every will earn a median of $45,000 a day this yr, 69 % greater than in 2014, in accordance with the typical of 10 analyst estimates for international charges compiled by Bloomberg.

Shares of Euronav superior 22 % this yr, whereas these of Frontline Ltd., with a fleet of 24 supertankers, jumped 25 %.

OPEC pumped about 31.3 million barrels a day final month, and can most likely keep its official output goal of 30 million barrels a day when members meet in Vienna on June 5, in accordance with a Bloomberg survey of analysts and merchants. The group determined in November that fairly than minimize provide to prop up costs, they might hold pumping to hobble higher-cost producers.

Floating Storage

The capability of the worldwide tanker fleet has been additional constricted by traders storing oil at sea, looking for to revenue from longer-dated futures contracts costing greater than near-term provide. About 20 million barrels are being saved, in accordance with the typical of three estimates from analysts.

“The summer is not usually the time when rates really should go high,” Odysseus Valatsas, chartering supervisor at Dynacom Tankers Management in Glyfada, Greece, stated by telephone May 21. “The market has picked up and it’s looking great for the owners for the summer.”