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Oil crash results in higher shipping rates for storage

Oil crash results in higher shipping rates for storage

Moscow, March 12 - Neftegaz.RU. The mayhem in the oil market following the breakdown of OPEC- Russia talks on production cuts and Saudi Arabia's decision to pump more oil into the market as a retaliatory step has provided a window of opportunity for oil tankers to boost their earnings by raising the chartering rates for customers who have increased purchase of cheap oil to boost reserves, IANS analysed.

According to analysts, shipping rates from the Middle East to Asia have risen by more than 25 % since last weekend that has also seen crude oil prices dropping by almost 30 % in a single day on Monday. Also, buyers of oil are leasing very large crude carriers (VLCCs) to store crude offshore and take advantage of the current pricing. Such storage may be offloaded in coming days as crude gains some ground.

"The present conditions have presented an opportunity for tankers to maximise their gains from interested oil buyers looking to build inventories taking advantage of four year low oil prices. However, this advantage for tankers would be lost if suppressed oil prices continue for long and globally slow demand conditions aided by spread of coronavirus again gain ground," said an oil sector expert from a global consultancy firm asking not to be named.

A VLCC can normally be leased for around $30,000 a day but over the last couple of days the leasing price has jumped to around $40,000 a day on Tuesday and some reports suggest that VLCC tanker rates along the Middle East Gulf to China route have touched $70,000 per day on Wednesday.

The latest surge has come as a shot in the arm for ship owners who have been braving suppressed demand conditions for past few months. The coronavirus spread has further shrunk the demand while the latest salvo from Saudi Arabia has almost bottomed oil prices.

Analysts also say that that high prices being charged by the ship owners now may not sustain for long as the demand for cheap oil and subsequent storage has mainly come from traders. "But if traders find it difficult to offload the storage with gains, this spree would also slow down."