TANKER earnings have tumbled this week to fall below operating costs for smaller vessel sizes as crude exports decline and coronavirus cases escalate in Latin America, derailing any rebound in demand for clean products.

Aframax and suezmax average earnings have plunged as much 85% so far in June, dropping to under $5,000 per day to signal a rapid and volatile reversal of fortunes. Average rates for very large crude carriers that reached a record $214,000 daily in late March are now at just under $15,000, down 66% in three weeks.

Similar declines are recorded for clean tanker rates, especially on key routes shipping diesel, gasoline and jet fuel. Medium range tankers, which are the workhorses of Atlantic trades, are averaging just under $8,000 per day in earnings after peaking at nearly $87,000 daily in late April, according to the Baltic Exchange. Long range one tankers shipping jet fuel to northwest Europe from Kuwait are recording spot rates of $8,270 per day, data show, less than half levels seen earlier in June.

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Leading rates lower is high compliance to an agreement made by the Organisation of the Petroleum Exporting Countries plus other producers to extensively slash oil production over the next three months to arrest falling prices, which reached 21-year lows over April.

That has reduced Middle East Gulf crude exports by nearly 4m bpd through May and June, based on April’s record output, data compiled by Lloyd’s List show. That is equivalent to nearly 50 fewer VLCCs over June alone on the key Middle East route.

Saudi Arabia’s May exports alone are 27% below April’s volumes, which exceeded 10m bpd, according to Lloyd’s List Intelligence data. April volumes peaked just before the kingdom ended its oil price war with Russia and the US with the so-called Opec-plus agreement.

Despite production cuts, crude and product inventories in key consuming countries of the US and China are still rising. Alongside shoreside tanks, volumes held on tankers via floating storage also remain largely unchanged over the month while refinery runs show little signs of recovery. This is most acutely seen in the US, the largest exporter of clean products, with Latin America the biggest market. 

That has all combined to swiftly sour sentiment across both clean and dirty tanker markets, and particularly in the Atlantic basin. Brazil’s clean product imports are reportedly running 40% lower than in the year-ago period, while Mexico is seeing similar figures. This is having a knock-on effect on US Gulf refineries, a major exporting centre for refined products. Utilisation of US Gulf coast refineries is at 64% while inventories reached a fresh record for the week ending June 19.

In the US, June’s average clean exports of 4.5m bpd are running 12% lower than in the prior-year period, US Energy Information Agency data show. Coronavirus cases are still escalating across Latin America, fuelling speculation that imports will likely dip further.

Shipowners’ biggest concern is that floating storage has not begun to unwind but rates have already fallen to such low levels. Some 282m barrels of crude and products have been kept on tankers at anchor for the past 20 days, Lloyd’s List Intelligence data show.

Floating storage shielded tanker owners through the worst of the Covid-19 oil demand collapse, with port congestion, discharge delays, distressed cargoes and an oil price contango deploying as much as 12% of the aframax-to-VLCC fleet for floating storage.

The timing and pace of unwinding floating storage is viewed as crucial to any sustained recovery in tanker rates for the remainder of 2020.

Although the global oil market is rebalancing over the second half to lift oil prices, tankers returning to trade add pressure to the over-tonnaged market. And while Chinese crude imports are expected to reach a record for a second consecutive month in June, inventories there are still building, suggesting any recovery in demand is not occurring as swiftly as hoped. With Beijing returning to lockdown, July volumes will be closely watched.

Operating costs for a product tanker were estimated at $7,280 daily for a medium range tanker, according to RDO’s 2019 Opcost report. Suezmax tankers cost $8,800 per day to run, while aframaxes cost nearly $7,400 daily.