By Apostolos Rompopoulos
Tanker Chartering Broker
There is no doubt that the Covid-19 pandemic crisis is a world-shattering event that will change the world as we know it. Societies are facing challenging moments, markets have been violently disrupted and it will become even more visible later on that governments around the world will experience major shifts in their respective political and economic power.
As we have already witnessed, Brent prices are experiencing their lowest levels in 17 years, closing at $27.2 per barrel last Friday, whereas West Texas Intermediate crude (WTI) closed at $23 per barrel. According to Goldman Sachs analysts, the price of Brent, which is the international benchmark, “could dip as low as $20 per barrel and test operational stress levels”.
A week ago, Bank of America warned that the US is close to a new major recession due to the worldwide spread of the Covid-19. Simultaneously, oil producing countries keep on increasing their production at record levels amidst a price war between Russia and Saudi Arabia, after OPEC+ (OPEC and Russia) failed to come to a consensus over additional production cuts. Official selling prices lowered by as much as 20% have been also used as “weapons” in this price war.
At the moment, global demand for oil hovers around 100 million barrels per day. Yet, as consumption is gradually decreasing due to the tremendous economic shake of the COVID-19 and the subsequent containment measures, demand could possibly plunge an additional 20% according to some first estimations. The final outcome of this crisis still remains unknown; however, certain analysts reassure that some more optimistic scenarios are possible to play out. According to Andreas de Vries, advisor at Saudi Aramco, the successful containment policies against the Covid-19 pandemic and the implementation of stimulus packages could stem the secondary and tertiary effects on the economy.
The oil market status quo calls for an a pragmatic resolution aiming to terminate the price war. Nevertheless, a termination of the price war will not be able to push prices back to $60 plus per barrel, with levels around $40 seeming more realistic if major producers come to an agreement. As de Vries highlights, even in the best-case scenario, the average crude price will still remain considerably below what most producing countries need in order to successfully balance their respective budgets. Indeed, the extent of the virus containment measures that are currently being implemented will affect to a massive degree a number of sectors that are heavyweights for the economies of many of the producing nations, like tourism for example.
At the same time there is a growing number of voices that warns for a series of major economic consequences, with the worst-case scenario being a global economy devastated by a wave of continuous bankruptcies. We are seeing significant economic stimulus announced around the world, with the U.S. expected to reach soon a deal on a $2 trillion coronavirus aid, but the effectiveness of the implementation of these packages remains uncertain at this stage. A failure of these stimulus measures to support vital sectors of the economies around the world will lead to a prolonged crisis that could prove worse than the big downturn of 2008, but for now let’s remain reservedly optimistic and hope it doesn’t come to that.
Chartering (Wet: Soft- / Dry: Stable-)
The Dry Bulk market was left directionless last week, with the slowdown in Panamax earnings offsetting almost entirely any other positive movement. The BDI today (24/03/2020) closed at 603 points, down by 14 points compared to Monday’s (23/03/2020) levels and decreased by 9 points when compared to previous Tuesday’s closing (17/03/2020). The rally in the crude carriers market has been losing considerable steam in the past days, while despite the curbed enthusiasm, averages rates remain well above the respective year average across all sizes. The BDTI today (24/03/2020) closed at 1,041, decreased by 475 points and the BCTI at 853, a decrease of 7 points compared to previous Monday’s (17/03/2020) levels.
Sale & Purchase (Wet: Stable+ / Dry: Soft-)
The secondhand market has been very quiet this past week, with activity focusing mainly on tanker candidates, among which crude carriers were the most popular, while volatility in dry bulk earnings seems to have scared off Buyers in the sector at least for now. In the tanker sector we had the sale of the “GHAWAR” (300,361dwt-blt ‘96, Japan), which was sold to Singaporean buyers, for a price in the region of $21.0m. On the dry bulker side sector we had the sale of the “CORAL AMBER” (78,072dwt-blt ‘12, Japan), which was sold to Indonesian owner, Asian Bulk Logistics, for a price in the region of $24.5m.
Newbuilding (Wet: Stable- / Dry: Stable+)
Following the small uptick in the number of weekly orders that were confirmed during the first half of March, surfacing shipbuilding activity has come down to levels in line with the grim sentiment that is currently prevailing across the newbuilding sector and the shipping industry in general. As the coronavirus crisis keeps deepening, markets around the globe remain under extreme pressure and seaborne demand scenarios get more and more pessimistic for this year, while despite all the doom and gloom, there are some – very few – owners who still display appetite for newbuildings, daring to look beyond the current turmoil and focusing on what will hopefully be an improved market by the time delivery of todays’ orders will take place. In terms of recently reported deals, UK based owner, Union Maritime, placed an order for one firm and one optional LPG carriers (90,000 cbm) at Hyundai, in South Korea for a price in the region of $70.0m and delivery set in 2022.
Demolition (Wet: Soft-/ Dry: Soft-)
With even more strict measures against the coronavirus spread taken within the usual demo destination countries in the Indian subcontinent market, prices, activity and consequently sentiment took another hit in the past days, while downward pressure is expected to extend in the coming weeks. Following the cancelling of all international flights for two weeks, India is now denying entry to all vessels heading there for scrap, while a similar approach is taken by Pakistan as well. The fact that cash buyers from both countries are sitting on the sidelines at the moment has allowed Bangladesh to monopolize the very little action that is take place, while with competition out of the picture, bids coming out of the country have also moved further down. At the same time, demo prices in Turkey have been noting even bigger discounts as the Turkish Lira has been losing ground against the USD at a very fast pace, while it is widely expected that the market there will also have to close its doors sooner rather than later.
Please find below market report for week 12 2020.