"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Saturday, May 2, 2015

Oil Tankers Sit, Traders Have A Fit, Upstream Won't Commit, US Shale Producers 'Oh Shit!'

Oil tankers are just sitting in the water, motionless.   Floating storage vessels, like Knock Nevis, are just hanging out off the coast of Bahrain.   The largest oil tanker, TI Europe, rests quietly off the coast of Malaysia.  

I've highlighted that Andrew Hall bailed on his long-end-of-the-curve positions through Q3 and Q4 2014.   In his place we have Vitol and Morgan Stanley apparently stashing black gold on-shore in the hopes of accumulating low priced product to be held until prices appreciate again.  It's unknown what levels of oil  Paul Tudor Jones is stashing or how much the Saudi Sovereign Wealth funds are storing or how much any speculators may be floating in offshore vessels.

The 'Knock Nevis' - Largest Floating Storage Vessel

The 'TI EUROPE' - Largest Oil Tanker

Aside from the vessels hanging out in Rotterdam and Singapore, the busy Port of Fourchon (aka Louisiana Offshore Oil Port) shows the tanker arrival activity is a ghost town (red bars).

Bloomberg had said in March that the industry's largest tankers could pull upward of $35K per day as the industry began to transition away from floating storage and back into charters.  The dynamics of the oil game appear to be changing away from floating storage to land storage and the ships are slowly beginning to move.     

TradeWinds reported a couple days ago that 1/10th of VLCC's (very large crude carriers) second-hands are available and Seatrade has reported China picked up a pair of these bad boys from Sinokor Merchant Marine for a total of ~$165M.  The combined capacity of the ships is ~623,000 dwt. 

The VLCC's are known for their ability to pass through Suez and are heavily used in the North Sea, Mediterranean region, and West Africa.  A company called Frontline of Bermuda owns 44 of these ships and is the largest owner in the world.

Speaking of big players, Euronav which is the largest publicly traded crude tanker company is said to not be seeing any problems with its routes in the Yemen region, one of the key Middle East routes. Euronav's CEO has said there are no disruptions to routes in Yemen according to Lloyds List as of May 1, 2015.  Back on February 17 Morgan Stanley initiated coverage on Euronav at Overweight saying:
"Two-thirds of its capacity comes from VLCC; the rest, from Suezmax tankers that operate heavily in the spot market.  This allows investors to play the volatility of th ehot crude tanker market through a well-managed and well-capitalized company."
Euronav trade-lines from their website are below.

Yemen isn't a cheap place either.   VLCC's utilize hull insurance, cargo insurance, liability coverage, and war risk insurance.  Rates are derived from deadweight tonnage (dwt) and the ships value overall.  One group, the Int'l Group of P&I Clubs has 13 underwriting members accounting for liability coverage on 90 percent of the world's ocean-going tonnage.  FYI:  Rates for Bab el-Mandeb in Yemen are typical priced using various index inputs:

The big focus on the clear turnaround in the market will come once the big tankers get moving and insurance rates along with shipping rates pick back up.  Should all that oil flood at once it could cause prices to remain between $60 and $70 through 2016 especially thanks to the expected stream yet to come from all the untapped fracklog wells.  Keep an on eye on the December 2016 WTI  & Brent contracts.