PETALING JAYA: Daily rates for tankers have risen exponentially on the back of the higher oil extraction by major producers, which have been driving a booking frenzy for tankers.
UOB Kay Hian Research said this included both crude transportation and also floating storage, in view of the deep contango price structure.
It pointed out that tanker rates have spiked closed to 4Q19 levels. The daily rates for very large crude carrier (VLCC) along the Middle East-Asia route have jumped to between US$160,000 and US$210,000 late last week as compared with between US$20,000 and US$30,000 a month ago, which was below the breakeven level.
The research house added that as the current contago play did not encourage long-term storage, floating storage are being locked in for six-month time charter terms at US$50,000 to US$60,000 (US$4.60 to US$5.50 per barrel), an increase from US$35,000 to US$38,000 just a few days prior.
UOB Kay Hian said MISC BHD was expected to benefit moderately on a low spot mix of 30% to 40% in the petroleum segment through its subsidiary AET Tankers.
It added that long-term contracts may have pass-through clauses that benefit charterers instead.
The research house maintained its “buy” recommendation on MISC with a target price of RM7.60, acknowledging that MISC has an inverse correlation to oil prices and that the current tanker dynamics would support its near-term catalyst.
It also believed that some of the projects within MISC’s more than US$5bil tenderbook may see delayed sanctions.
It is also assuming that oil prices will recover to around US$45 per barrel towards 4Q20 mainly on the coronavirus disease (Covid-19) recovery, which would be positive for tanker demand.
But the demand weakness may cap the upside of tanker sentiments, unlike in 2014 and 2015 when crude and tanker ton-mile demand were strong.
“We view that demand weakness is the key difference today and this may cap tanker rates upside in the 2Q20 horizon.
“Firstly, even if China recovers from Covid-19, crude demand from the rest of the world may deteriorate from 2Q20.
“The more important reason is that 2Q20 crude demand will be impacted by a higher intensity of refinery turnarounds, ” said UOB Kay Hian.
S&P Global Platts had said that Asian refinery capacities are expected to shut 65% more regional operating capacities, as compared with 1Q20.
This translates to a 2.8 million barrel per day (bpd) loss in potential demand, up from 1.7 million bpd in 1Q20.
AmInvestment said countries such as Saudi Arabia, Russia, Iraq, Nigeria and the United Arab Emirates have indicated plans to increase supply in the coming months and traders are storing lowly priced spot barrels at sea for sale at high future prices.
It upgraded its recommendation on MISC to “hold” from “sell” at a fair value of RM7.80, saying that it maintained MISC’s earnings forecasts as spot VLCC prices will not have a significant impact to the group’s earnings as it had already secured long-term agreements with clients for its VLCC vessels.
It also viewed that the negative sentiments on petroleum tanker due to Covid-19 have been partially alleviated by the tanker rate rebound.
“In our view, the 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.
CGSCIMB Research in transport sector report last week, highlighted MISC as its top pick, being the beneficiary of higher oil production as traders snap up VLCCs for storage, reducing the supply of tankers, aiding a rise in freight rates. It recommended a “hold” on the counter with a target price of RM8.56.