April 5th 2020 | By Ioannis Psarros, Kostis Chatzimichalis, Semiramis Assimakopoulou
Many estimate that global onshore storage may max out within the next few weeks which could drive additional demand to use tankers as Floating Storage. In anticipation of oil production cuts that may soon be announced through an OPEC+ meeting, we analyzed three scenarios to quantify the potential impact of Crude Oil oversupply on global VLCC supply.
At Signal, we are obsessed with counting vessels and understanding short term vessel commercial availability. We’ve been especially interested in monitoring the VLCC segment since it has been driving the freight market lately.
We did an analysis to quantify how many VLCCs could be required for use as floating storage — and therefore made unavailable — in the face of a global oversupply of Crude oil.We decided to analyze three potential oversupply scenarios for Crude oil overproduction: “Low”, “Mid”, and “Black Swan” and their impact on VLCC supply. We have used the following three key assumptions:
In the table below, you can see the results of this analysis basis the assumptions mentioned above at three different levels of Oversupply (Production-Demand).
Three scenarios showing the potential impact on floating storage requirements.
Obviously, the numbers are highly dependent on a number of factors, including:
The “Low” Case scenario is almost where we stand at the moment. The “Mid” Case scenario, visualized in the graph below, would result in more than 50% of the VLCC capacity or a mix of VLCC, Suez, Afras being relegated to floating storage:
The "Mid" case scenario: Requirements for crude floating storage per day for the 3 large vessel segments
Monitoring cargoes and associated drops in Vessel supply in real-time will become even more relevant in the current global context. Let’s see how the end of April and beginning of May will evolve during the next few days. We saw an increase of 5% over March 2019 and 20% percent over February 2020.
Using The Signal Ocean Platform, you can view a real time cargo count based on market fixtures for VLCCs on a yearly, monthly, and decade basis.
We will continue to keep an eye on cargoes count and associated vessel supply and will take a closer look at similar events in the past and how the market has reacted. The big question is at what point freight rates become uneconomical and when the market would reach the “tipping point” where freight for normal VLCC voyages due to reduced vessel supply will balance storage rates and smaller crude carriers for storage would be considered.
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March 27, 2020 | What would longer voyages mean for overall vessel availability?
March 17, 2020 | We kept a close eye on vessel supply in the wake of the March 9th drop in oil prices.
February 12, 2020 | Freight rates for the VLCC market remain depressed. This correlates with an increase in vessel supply.