The oil and gas industry benefitted from a strong and solid ground in the previous year. We witnessed a slow but steady increase in bunker’s prices that led, after a very long time, in large oil producers rethinking the revival of old and the beginning of new projects, which provided an opportunity for owners to charter their vessels in a healthier offshore business.
This positive momentum of the aforementioned increase in bunker’s prices continued up until recently and was largely affected by two main reasons. Initially, OPEC member countries agreed with Russia to extend oil supply cuts by an additional 500,000 barrels a day through the end of March 2020. Secondly and even more significantly, more than 5 percent of Saudi Arabia’s daily global oil production was disrupted as a result of the unexpected attacks on the country’s oil facilities.
Following these events, the price of Brent crude oil surpassed $70 per barrel this year while many expected the commodity to reach even higher levels as everything pointed out that we were moving towards a “cold-war” between U.S.A and Iran. However, the intervention of other countries denied bunker prices another leg up, with oil gradually slipping back to low $50 per barrel.
It is worthwhile mentioning that during the previous year the market benefitted from healthy activity as far as activity in projects and charter requirements for offshore vessels delivered to West Africa, United Arab Emirates and India Region were concerned, while in terms of the number of reported second-hand deals of AHTS/PSV units, buyers appetite grew significantly during that period. Along the same lines, scrapping activity remained firm, pushing as a result prices for secondhand OSV vessels up by 40% in some cases, while tonnage supply came down as a result and distressed deals started becoming scarce.
However, as 2020 kicked off, market momentum started to wane and uncertainty currently prevails in the market. Even if the long-awaited trade agreement between the US and China was finally signed, the positive spill overs will probably not be felt until later on in the year. In addition, tension in the Middle East last month together with the effects of the coronavirus on global economy and international trade that seem to be worsening day by day, are adding to the lack of confidence among market participants in regards to future oil prices.
Indeed, the first trading day in China, following the New Year holidays in the country, has already seen the local administration imposing tough measures to contain the virus, while many businesses are expected to remain shut in the coming weeks, leaving little room for an imminent improvement both in oil prices and investors’ sentiment.
Chartering (Wet: Soft-/ Dry: Soft-)
With the BCI being the first ever index to make a negative closing, needless to say that sentiment in the dry bulk market remains particularly soft, while this is expected to be another negative week for rates across the board. The BDI today (04/02/2020) closed at 453 points, down by 13 points compared to Monday’s (03/02/2020) levels and decreased by 86 points when compared to previous Tuesday’s closing (28/01/2020). In its worst performing week since the beginning of the year, the crude carriers market saw activity and rates moving down sharply, while sentiment as at the time of this writing still remains very soft. The BDTI today (04/02/2020) closed at 803, decreased by 290 points and the BCTI at 601, a decrease of 24 points compared to previous Tuesday’s (28/01/2020) levels.
Sale & Purchase (Wet: Firm+ / Dry: Stable-)
SnP activity sustained its volumes last week, with tanker sales holding on to the lion’s share, while the smaller sizes remained the most popular ones among dry bulk investors. In the tanker sector we had the sale of the “FRONT HAKATA” (298,465dwt-blt ‘02, Japan), which was sold to U.A.E based buyers, for a price in the region of $31.5m. On the dry bulker side sector we had the sale of the “DUKE ORSINO” (91,439dwt-blt ‘05, Japan), which was sold to Chinese owner, Maple Leaf Shipping, for a price in the region of $9.5m.
Newbuilding (Wet: Firm+ / Dry: Stable+)
The number of newbuilding contracts surfacing during the past days remains healthy, with reported contracting activity still running on steam from the strong last quarter of 2019. The negative turn the tanker freight market has taken in the past couple of weeks is expected to impact negatively the ordering activity we will be seeing going forward, as macroeconomic fundamentals have already worsen in the first month of the year and are bound to dishearten owners who contemplate placing an order at this stage. We therefore expect perspective newbuilding investors to move to the sidelines at least in the short term, while those looking to capitalize on bottoming rates and softening sentiment will most probably seek for buying opportunities in the second-hand market. In terms of recently reported deals, Greek owner, Evalend, placed an order for one firm VLCC tanker (300,000 dwt) at Hyundai Samho, in South Korea for a price in the region of $94.2m and delivery set in 2021.
Demolition (Wet: Soft-/ Dry: Soft-)
Following a month of very generous activity and firming Indian subcontinent offerings that have enjoyed premiums in excess of $30/ldt since November, it seems that global tensions together with oversupply of available demo candidates have in the past days taken their toll in the demolition market that has seen its first negative week this year. The decrease of scrap steel prices in the Indian market together with the generous number of big ldt bulkers that have been heading for scrap following the depressive freight market of the past weeks, have scared off cash buyers in the region, with sizeable drops noted in average bids out of both Bangladesh and India during the past days. Average prices in the different markets this week for tankers ranged between $240-390/ldt and those for dry bulk units between $230-380/ldt.