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International Seaways shifts three scrubber installations on pandemic floating storage need

International Seaways is postponing three of its 10 VLCC scrubber installations to align with the next natural dry docking days for these ships in 2021, as the company expects a bullish second- and third-quarter tanker market due to excessive crude supply and the resulting need for seaborne storage of oil and products, President and CEO Lois Zabrocky said.

Speaking during the company’s first-quarter earnings call, Zabrocky said “excess production continues the need for tankers to be used as floating storage, and, coupled with increased delays offloading cargoes as shore-based storage fills up, has supported a robust tanker rate environment.”

International Seaways is the second company in the last two days to announce a delay in scrubber installations after clean tanker owner Scorpio revealed Tuesday the postponement of 19 scrubber installations amid deteriorating economics. Fouling economics were prompted by a 75% drop in the sulfur spread between 3.5% and 0.5% sulfur bunker fuel to an April average of $58/mt from a January average of $234/mt on a delivered basis Rotterdam, according to S&P Global Platts data. The sulfur spread is a key indicator of the investment payback for scrubber installations.

Bullish tanker markets resulting from a supply/demand imbalance caused by global overproduction against the backdrop of pandemic demand destruction is another economic element having tanker owners rethink their scrubber installation schedules, as widening contagoes on the oil markets essentially pay for growing floating storage demand, in turn boosting tanker freight rates.

OPEC expects global oil pandemic demand destruction of 6.8 million b/d year on year in 2020 to 92.82 million b/d, with April seeing the largest downturn at about 20 million b/d, according to its latest monthly oil market report. The International Energy Agency sees demand reduced by 29 million b/d in April and 9.3 million b/d for the entire year, compared with a 10.7 million OPEC+ production curb for May and June.

FLOATING STORAGE RATES DIP AS CONTANGOES CONTRACT

Tanker owners shift scrubber installations to capitalize on bullish markets

International Seaways capitalized on the stock-building spree by executing two seven-month VLCC time charters at an average rate of $100,000/d starting in May and two prior one- and three-year time charter agreements at $53,000/d. These are for the 2002-built VLCC Seaways Tanabe and at $45,000/d for the 2012-built Seaways Kilimanjaro, respectively, both with an April start.

Since the peak forward crude oil market contangoes have narrowed with the NYMEX Wednesday, WTI June carry between the first- and sixth-month contracts settled at $5.77/b, a payoff of around $42.70/mt. This translated into a floating storage ceiling cost of around $64,000/d basis 270,000 mt stored on a VLCC. Zabrocky indicated current sixth-month VLCC floating storage rates at between $55,000-$60,000/d.

“The charterers and the storage potential is taking a little bit of a breather at the moment as the market is adjusting,” Zabocky said, expecting newbuilding VLCCs and Suezmaxes to store products upon their delivery from the shipyards.

International Seaways owns and operates a fleet of 40 tankers, including 13 VLCCs, two Suezmaxes, five Aframaxes/LR2s, 13 Panamaxes/LR1s and five Medium Range tankers.
Source: Platts

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