Last year (2020) due to the Covid-19 pandemic that swept the world, the VLCC (Very Large Crude Carriers-the longest ship ever built) with a capacity of more than 300000 tons dw offered record profits of $240,000 a day as demand was huge for oil supply and storage due to the low price of oil.
VLCC was used as storage facilities in 2020 and when states wanted to take advantage of low oil prices if they increased their oil reserves. But now that this practical use of VLCC as storage facilities has ceased, their available capacity is enormous and combined with the non-reduction of production from Saudi Arabia have reached the nadir of fares for VLCC. Today the fare prices for VLCC are $7000 per day.
by Thanos S. Chonthrogiannis-https://trusteconomics.eu
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Gradually over time the number of VLCCs that come out in action and cease to be used as storage spaces increases.
Other Factors That Exacerbate the Nightmare in the VLCC Fare Market
Consumption and demand for crude oil is on a downward trajectory throughout 2020. Both the EU and the US are on a path of de-lignitization (brown coal). At the same time China announced its ambition to eliminate carbon dioxide emissions before 2060.
Under the Paris Agreement, coal use for electricity generation should be reduced by 80% by 2030 compared to 2010. European banks have stopped lending capital to companies with more than 3% lignite revenues. Despite existing vaccinations running in existing economies, economic shutdowns and lockdowns continue. Demand for oil remains low.
Oil production fell to 92million barrels per day in 2020 from 101million barrels per day in 2019. A huge difference in production. OPEC in 2020 has decided to extend its production reduction for 2021 to 7.2 million barrels per day.
We recommend that Shipping Companies begin to gradually shift towards reducing their fleet to VLCC and increasing their fleet in Cargo ships and NLG. In this way their profit portfolio will be more balanced and more resistant to price fluctuations in fares.
