VLCC Rates Slump as Coronavirus Hits China Oil Demand

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By Julia Payne and Ahmad Ghaddar – LONDON, Feb 3 (Reuters) – Freight rates for supertankers on the Mideast Gulf and U.S. Gulf routes to Asia have fallen to their lowest since mid-September as the coronavirus outbreak hit Chinese oil demand, ship brokers told Reuters.

China’s Sinopec Corp, Asia’s largest refiner, and so-called “teapot” independent refineries have reined in operations in the face of plunging consumption.

“The market has gone back to what it was before the COSCO sanctions came in,” one ship broker said, referring to U.S. sanctions on subsidiaries of the state-owned Chinese shipping company.

“All the other variables have gone away, such as IMO 2020 congestion at ports, movement of low-sulfur fuel and industrial action in Europe.”

Freight rates shot up in late September on the back of the COSCO sanctions and again in December because of logistics snags related to the switch to cleaner shipping fuels with the introduction of the new IMO 2020 regulations.

The United States partially lifted sanctions on COSCO last Friday.

Ship broker Braemar on Monday said that the rate for a very large crude carrier (VLCC) from the U.S. Gulf to Asia had fallen to $8 million, the lowest since Sept. 19. Another broker said a similar voyage was quoted at $7.5 million.

Riverlake, another ship broker, said the world scale rate for the Middle East route was at its lowest since Sept. 16.

Sinopec is cutting throughput this month by about 12%, or 600,000 barrels per day, in its steepest cut in more than a decade.

The company’s Unipec trading arm has stopped buying West African crude and is re-selling at least five cargoes of Angolan crude.

Separately, major independent refineries in east China’s Shandong province, which collectively make up a fifth of China’s oil imports, have cut operations by 30-50% to less than half of their capacity, a level not seen since at least 2015.

(Additional reporting by Roslan Khasawneh in Sinagpore Editing by David Goodman)

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This article contains reporting from Reuters, published under license.

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