A VLCC in happier times (source: Euronav)
May 16, 2022by Craig Jalal
Only two years ago, in April 2020, the headline was “VLCC = very large cash cows” with spot rates of USD 200,000 per day. Today, VLCC spot rates are in negative territory
April 2020 was an exceptional month from all points of view: the Covid pandemic was taking hold and demand for crude oil was collapsing.
US onshore storage tanks were approaching capacity, there were record imports of Saudi crude oil and an excess domestic supply of crude oil over demand led to a one-time negative US$37.63/bbl, as derivatives traders held futures for West Texas Intermediate crude oil for delivery in May 2022 was scrambled to avoid taking physical delivery.
April 2022 was totally different – VLCC revenue was well below breakeven rates.
“At US$115 million for a standard VLCC, an average owner needs about US$33,500 per day for the next 20 years after delivery to break even on the investment,” Poten reported. & Partners in its latest Poten Weekly Opinion.
According to the May 13, 2022 edition of Weekly Shipping Intelligence published by Clarksons Research Services (CRS).
For the latest VLCCs equipped with an eco-scrubber, CRS estimated revenues to be in the order of $12,300 per day, which is well above average, but still below the break-even point required to justify the investment in new VLCCs.
This disconnect between scrubber-equipped and non-scrubber-equipped VLCCs and the shift of VLCC exchanges to shorter routes has led some analysts to question the value of the VLCC routes that form the basis of the Baltic Exchange.
In its latest report, EA Gibson Shipbrokers noted, “The majority of VLCCs trading in the spot market are capable of generating higher returns than the Baltic Exchange VLCC benchmark description.”
With 2022 being one of the last years to see significant VLCC deliveries, the profile of the VLCC fleet is changing.
“This begs the question, is it now time to assess VLCC benchmark earnings on a different basis?” asked EA Gibson Shipbrokers.
