LR2 Floating Storages Fully Unwind
July 23, 2021
As we projected in the 2021 Tanker Market Outlook published back in January, the CPP market continues to outperform the DPP market in the 1H of the year and is expected to grow further for the rest of the year. Although the oil product demand is recovering at a much faster pace than crude demand, the CPP tanker market benefited significantly from the support on the tonnage supply side – one of them being the fast unwinding of floating storages.
Due to the Price War and global Pandemic, both crude and oil product (including gasoline and jet) prices went into steep contango structure back in April 2020. Utilizing remotely-sensed vessel position data, we have captured 33 incremental increases in LR2 floating storages and 68 in VLCC floating storages. Since then, these two figures continued unwinding as crude and product balances tightened, resulting a draw in oil and product inventory. However, unlike a slowly tonnage release from the VLCC floating storages, 70% (23) LR2 floating storage were fully released from the stockpile by the end of Oct 2020. The “rip-off” has resulted a sharp decline in CPP tanker earnings, but significantly reduced the supply-side pressure in the 1H of 2021.
The month of June 2021 has saw a release of five LR2s back to the trading fleet and marked the full unwind of LR2 floating storages since the rapid buildup. The VLCC floating storage, on the other hand, are expected to continue unwinding with 14 vessels rejoining the fleet in the 3rd quarter. In the meantime, CPP tanker orderbook remains light, with only 21 LR2s and zero LR1 orders at of July 2021. With high steel prices, we expect orders to remain well under the average in the first half of the year, benefiting CPP tanker earnings in the medium term. Demolition activity in the CPP sector has been on pace with our expectation, with five LR2s sold for scrap in the 1H and another six expected for the rest of the year.
Therefore, with the support from flattening supply and recovering demand, we expect the LR2 sector to fare much better than the DPP market in the short-term.
Figure 1 – LR2 Floating Storage Statistics
Source: McQuilling Services
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