11 Oct 2019: The Recent Surge in Tanker Earnings is Unprecedented

Under normal circumstances, the Poten Weekly Tanker Opinion does not cover the same topic two weeks in a row. However, these are not normal circumstances. The rise in tanker rates started after the attack on the Saudi oil processing facilities in Abqaiq in Mid-September and accelerated when the Trump administration sanctioned a number of Chinese tanker companies, including COSCO (Dalian) on September 25. VLCC rates on the benchmark TD3 route from the Arabian Gulf to China, were assessed at $27,300/day four weeks ago. Two weeks later they doubled to around $53,000/day. One week after that they almost doubled again to $95,000/day.

Today, rates are anywhere between $200,000 and $300,000/day. Last week, we were referencing the winter of 2015 as that was the last time VLCC rates reached above $100,000/day. To find a reference to today’s skyrocketing rates, we must go back 15 years, almost to the beginning of the tanker super cycle. In the winter of 2004, rates also reached $250,000/day, but this came after VLCCs already earned more than $100,000 per day several times earlier in the year.

As can be seen in the first chart, tanker earnings have been modest through the first three quarters of 2019 but have increased ten-fold in the span of one month. The questions on everybody’s mind are: what caused this and is it sustainable, i.e. how long will it last?

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