24 October 2019
- As we all know, the super-spike evidenced on the VLCC market in early October was hardly related to any “normal” S&D conditions. As such, it was practically impossible to capture it on time using the tools available to us. It is true that supply got tighter from week #37 onwards but nothing in our model suggested the magnitude of the spike. Short-term tonnage supply started to expand during the market rally as hidden capacity was brought online. This is clearly demonstrated by our proprietary Dynamic Fleet Turnaround Time Index in Figure 1. The market reaction that followed such expansion in capacity was inevitable, but the situation is starting to change.
- Both spot and forward demand for crude oil tanker capacity surged week #30 onwards which likely contributed to the rates rally. This is displayed in Figure 2. As of today we estimate the forward demand as flat to marginally lower which is likely justify the current rates. In other words, no support from stronger demand for the rates in sight. As the crude oil forward curve structure moved in recent weeks, the return on storage (RoS) deteriorated further which our model considered to be an outright bearish development.
- Our macro view has somehow improved in the last couple of weeks which came as a surprise to us if we consider the strongly bearish signal which originated on the FX markets and displayed on Figure 3. Credit availability on the physical commodity markets has strongly increased which is always a good sign for the demand for crude/VLCC capacity in the medium-term