Thursday, October 21

MISC’s tanker rates buoyed by Saudi price war

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MISC has already secured long term agreements with clients for its VLCC vessels.

KUCHING: MISC Bhd (MISC) stands to gain from spot petroleum tanker rates reportedly rising by some 700 per cent over the past week to US$243,000 per day due to Saudi Arabia securing additional storage capacity for the expiry of the OPEC production quota by the end of this month.

This comes as Saudi Arabia has begun hiring 25 to 30 additional Very Large Crude Carriers (VLCC) to be deployed late this month or early April 2020 after OPEC’s recent negotiations with Russia was unsuccessful.

Recall that Saudi Arabia has announced unprecedented discounts of almost 20 per cent in key markets, apparently targeting Russia and the US shale industry as well as other higher cost producers.

AmInvestment Bank Bhd (AmInvestment Bank) said since the beginning of the month, Worldscale flat rates for the Arabian Gulf to Japan has surged by 3.6 times to WS172.5 level currently, while that of the Arabian Gulf to US Gulf Coast (USGC) soared 5.3 times.

“In our view, this rebound in tanker rates currently impacts mostly the VLCC segment for now given the lower storage capacity of the Aramax and Suezmax categories,” it said in a special note on MISC yesterday. “However, MISC has already secured long term agreements with clients for its VLCC vessels.

“Hence, we maintain MISC’s earnings forecasts as spot VLCC prices will not have a significant impact to the group’s earnings.

“Nevertheless, we view the negative sentiments on petroleum tanker demand due to the impact of the Novel Coronavirus pandemic have been partially alleviated by this tanker rate rebound.”

In other updates, Saudi Arabia’s crude into north-west Europe, a key market for Russian barrels, will be sold at discounts to its reference price of over US$8 per barrel compared to March 2020.

In the US, the country is also set to discount its crude by US$7 per barrel in April compared with March. Saudi Arabia also made prices cuts of between US$4 to US$6 per barrel to Asia.

Over the past week, Saudi Arabia, Russia, Iraq, Nigeria and the United Arab Emirates have all indicated plans to lift supply in coming months. As such, AmInvestment Bank saw that crude oil is currently trading in a deep contango price pattern, where traders store lowly priced spot barrels at sea for sale at higher future prices.