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Scrubbers and eco specs helping VLCCs avoid negative earnings

Average rates for the largest tankers have been below zero for 47 consecutive days, Baltic Exchange data show

Middle East Gulf VLCC loadings for March set to be the lowest on record, shipbroker says

OWNERS of modern, fuel-efficient very large crude carriers or those with scrubbers installed have escaped negative earnings amid dire market conditions over the first quarter, according to Cleaves Securities

Time charter equivalent calculations for the global fleet of 776 VLCCs are below zero on many of the benchmark routes, meaning that shipowners are effectively paying oil traders and producers to transport their oil.

But Cleaves Securities said these rates were not representative and that VLCCs with so-called ‘eco’ specifications that consumed less fuel earned a premium of $5,485 daily, taking them out of negative territory.

Likewise, VLCCs with sulphur abatement technology installed allowing the use of cheaper bunkers, earned $5,112 per day more than those without scrubbers.

If a tanker met both criteria and thus could operate more efficiently using cheap fuel, then time charter equivalent earnings would at least exceed operating costs, the Norwegian investment bank said in a weekly report.

Forty-nine per cent of the VLCC fleet had ‘eco’ specifications, 40% were fitted with scrubbers and 28% had both, Cleaves Securities calculated.

Cash breakeven rates, covering both operating expenses and loan repayments, were assessed at $24,000 per day with operating costs around $6,500 daily, according to the report.

Plunging exports as oil producers slashed shipments to draw inventories and support prices saw Middle East Gulf shipments in February plunge to their lowest monthly figure since January 2010, Lloyd’s List Intelligence data show.

Shipbroker SSY said that March loading figures for the Middle East Gulf were on course to set a new low, according to its monthly report, emailed on March 15. Some 95 to 100 VLCCs were projected to load in March, SSY said, 70 fewer than in the same period last year.

Illustrating the surplus were 25 VLCCs in the area without employment, which is 10 to 15 more than usually seen.

VLCCs have recorded their weakest earnings across the tanker sector throughout 2021.

The Baltic Exchange’s average time charter assessment for VLCCs on March 15 was minus $11,463 per day, the lowest since September 2013.

That was the 47th consecutive day the average time charter equivalent rate has been assessed as negative.

SSY said tanker earnings across the clean and dirty sectors have been the weakest since the shipbroker began assessing the routes, which in some cases dated back more than 20 years.

“Over the last six months rates have been under pressure from sustained low cargo volumes, the return of vessels from floating storage and weak refining margins,” it said in its monthly report.

“Despite the promising oil demand signals and increases in supply since OPEC+ output cuts were at their peak last summer, export volumes remain severely constrained.”

Braemar ACM has weekly rate assessments that also show similar premiums for VLCC tonnage with scrubbers and fuel efficiencies. 

A VLCC with a scrubber and eco specificiations earned $2,374 per day on the Saudi Arabia-China route, compared to minus $10,443 per day for one without either, the shipbroker’s weekly report showed.

On a triangulated route from the Middle East Gulf to the US Gulf, then to China and back to the Middle East Gulf, the eco-scrubber ship earned $21,893 per day, versus $7,791 daily without either, data showed.

Earlier this month key VLCC operators said they would not consider idling vessels to reduce surplus capacity and that slow steaming could generate savings to remove negative earnings.

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