Key Issues Macro Environment Oil Market Tanker Market April 2020 - - PowerPoint PPT Presentation

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Key Issues Macro Environment Oil Market Tanker Market April 2020 - - PowerPoint PPT Presentation

Nov 24, 2023 334 likes •503 views

Key Issues Macro Environment Oil Market Tanker Market April 2020 Marsoft Helps Clients Anticipate and Act to Maximize Risk-Adjusted Returns 3 What Do You Think? VLCC Spot Rates Averaged About $170,000/day Yesterday One Year Time Charter

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Key Issues Macro Environment Oil Market Tanker Market

April 2020

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Marsoft Helps Clients Anticipate and Act to Maximize Risk-Adjusted Returns

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3 What Do You Think?

VLCC Spot Rates Averaged About $170,000/day Yesterday One Year Time Charter Rates Are About $80,000/day

  • Stay in the Spot Market!
  • Lock in Some Earnings and Sleep Well
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Macro Environment

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5 The Outlook is Changing Fast…

Morgan Stanley (March 17):

  • Global economic growth will slow to 0.9% this year, “the lowest since the global financial

crisis.” The firm’s base case for global growth is -0.3% in the first quarter, -0.6% in the second quarter, 1.8% in the third quarter and 2.5% in fourth quarter.

  • The U.S. economy will see 1.8% growth in the first quarter of 2020, 0.3% in the second

quarter, 0.2% in the third quarter and 0.2% in the fourth quarter.

Morgan Stanley (April 3):

  • Lowered its first-quarter GDP forecast to -3.4% from -2.4% and its second-quarter GDP

forecast to -38% from -30%. "We expect the U.S. economic recovery will be more drawn out than previously anticipated, marked by a deeper drop into recession and slower climb out," the economists said.

  • Real GDP to contract 5.5% in 2020, the steepest annual drop in growth since 1946.
  • Third-quarter GDP growth estimate: 21%.
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6

Expect Massive Increase in Unemployment & Decline in GDP in Q2

  • But it is not a recession like 2008
  • It is a sharp COVID-contraction

Most Likely Outcome (Base Case)

  • Successful management of COVID-19 – April peak in OECD
  • Fiscal & monetary policy successful in quickly mitigating macroeconomic side-effects
  • Rebound in employment & GDP in H2 2020

Less Likely Outcome (Low Case)

  • COVID-19 pandemic accelerates through June
  • Fiscal & monetary policy insufficient to quickly mitigate
  • Slow rebound in employment & GDP in 2021

We Expect Base Case Confirmation in May

  • Reduced Covid-19 incidence and “stay at home” eased in June

Macro Environment

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Oil Market

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  • Double whammy for oil market
  • COVID-19 demand destruction: 13+ mbd
  • OPEC supply increase: about 2 mbd
  • Net global surplus 15+ mbd leads to

sharp drop in oil prices

  • VLSFO-HFO spread has narrowed from

nearly $400/tonne to less than $100/tonne

20 40 60 80 100 120 140 07.1 08.1 09.1 10.1 11.1 12.1 13.1 14.1 15.1 16.1 17.1 18.1 19.1 20.1 $/BBL Oil price (usd/bbl):

Oil Market

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Oil Demand Projected To Plunge 13+ mbd In 20Q2 How Will OPEC Respond?

  • Scenario 1: Price War
  • Saudis Increase Production
  • 15 mbd Stockbuild Fills Onland Storage & Leads To Sharp Jump In Floating Storage
  • Oil Prices Fall Below $20/bbl; US Shale Activity Drops Sharply
  • Tanker Rates Soar In 20Q2, Stay High In 20Q3
  • Scenario 2: Sharp OPEC+ Cut
  • 5-10 mbd Cut Will Lead To Smaller Stockbuild, Less Floating Storage
  • Oil Prices Could Stay Above $30/bbl; Smaller Impact On US Shale
  • Tanker Rates Fall Back Significantly, Especially In 20H2

Oil Demand Should Recover As Virus Subsides

  • But Inventory Overhang Likely To Haunt Tanker Market Into 2021

Potential Oil Market Scenarios

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  • Low oil prices should allow OPEC to regain market share from US shale

OPEC vs. US Shale

12 14 16 18 20 22 24 26 28 30 32 34 11.1 12.1 13.1 14.1 15.1 16.1 17.1 18.1 19.1 20.1 21.1 22.1 mbd OPEC Crude Production

  • N. American Production
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Tanker Market

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Tanker Supply Side Very Positive

  • Orderbook at 25-Year Low
  • Crude Tanker OB at 8% of Fleet
  • Product Tanker OB at 6%

Downside Risk For Tanker Demand

  • Big OPEC Cut Possible
  • Would Lead To Quicker Stockdraw
  • Lower Trade Demand And Floating Storage

Upside Potential For Demand

  • Prolonged Period of Excess Production
  • On-land Stocks Remain Full
  • Floating Storage Remains High
  • Oil Prices Remain Low, Leading To Further Reductions In US Shale Output

Tanker Market Scenarios

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13

  • Low oil prices led to formation of steepest contango in history, making floating

storage increasingly profitable

  • Collapse in jet fuel demand has supported clean tanker floating storage

Floating Storage

5 10 15 20 25 11.1 12.1 13.1 14.1 15.1 16.1 17.1 18.1 19.1 20.1 M DWT Floating Storage (m dwt)

2 4 6 8 10 12 14 16

  • 20,000

40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 3-month 6-month 9-month 12-month 15-month 18-month

$/bbl $/day Contango Period

Contango vs Profitable VLCC Rates

Breakeven TC -Rate 31-March Breakeven TC -Rate 3-April Contango 31-March Contango 3 April

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14 Sensitivity of VLCC Rates to OPEC Production

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 25 26 27 28 29 30 31 32 VLCC Rates, $/day OPEC Crude Output, mbd VLCC Spot Rates vs. OPEC Production (20Q2) March Production

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15 What Do You Think?

Will an OPEC agreement to cut more than 5 mbd be announced over the coming month?

  • Yes
  • No
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Q & A

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