Expect balance in oil market from second half of 2020: Joakim Hannisdahl

Source: Economic Times

This is an unprecedented crisis for oilNSE -2.56 % markets; something as basic as running out of storage space. What exactly is happening with tanker rates? What does the word contango as well mean because that too is a jargon?
As we entered this year, oil tankers’ fundamentals were already quite good. So year to date we see two main factors. One is the temporary collapse of the OPEC+ price corporation; so this increased the oil supply into the market and we also have the COVID-19 outbreak which is just destroying demand. So this creates a collapse in oil prices and also a contango in the futures curve.

So even though we believe that the oil supply situation will abate into May and June as OPEC+ came to an agreement to cut production, we still do see incredible implications or contango in the futures curve. So right now as you mentioned, very large crude-oil carriers (VLCC) could potentially store oil and earn $150,000 per day for six months. So this means that vessels are being used more and more for floating storage. They are also sailing slower due to the time rally after the cargo and we also see longer discharge times at the end of the trade.

What has happened to the cost of ships? We believe there is also a big increase in the price of acids. Are you seeing increased ship trading at your end?

So when we came into the year, asset prices were already quite high. So the main factor right now is the longevity of the storage economics. So how long this is going to last is challenging to predict. It is going to last as long as there is oil oversupply. On our expectations, we see a balanced market from the second half of 2020. This is obviously highly uncertain and we have a high or wide range of outcomes ranging from 5% to 25% of the oil tanker fleet being tied up in floating storage at some point during this year. So against this, we have an offsetting factor of 10% lost demand for oil tankers from less oil supply into the market; so this is kind of a short-term snapshot and the tanker rates are going to be very high as long as the storage economics persist and asset prices are also being well supported.