Last year's bullish thesis on tankers was driven mainly by the US become net-seaborne exporter, driving ton mile as marginal barrels needed to travel more. We remained sceptical of that wisdom given our bearish view on US Shale. That thesis is now all but off the table. But... 
With unrestrained production arriving in April after the breakdown of the OPEC+ alliance, along with lower global demand due to the coronavirus (COVID-19) outbreak, EA crude balance now shows stockbuilds of 355 mb from March to June! Wow.
This is a huge amount of oil to place in a relatively short period of time, and Brent spreads have fallen into triple-digit contango to incentivise storage. #contango
Brent spreads already suggest that available European storage capacity will be exhausted and that floating storage will be required to fully accommodate the surplus.
Onshore crude storage typically requires contango of -$0.25 to -$0.40 to fill, while floating storage needs more than -$0.70 to compensate shipowners for extended-term charters with often uncertain destinations. Markets are currently well below -$1.50. So business is real.
And hence why demand is soaring for storage capacity and dayrates of tankers are exploding.
So what? Well, with VLCC opex at or around $20k per VLCC, every dollar earned above flows directly to equity capital. Taking about operational gearing! See our illustration below.
The OPEC+ war means that tankers will generate significant earnings in Q2 (in shipping, nothing lasts long). Come Q4, seasonal upswing should provide for decent quarter. With Q1 already more than decent, it is likely that current share prices trade at less than 40% div yield.
Good luck out there and do your own research!
More prove of a crazy scramble for #tankers today. >400k is the winner today!
And another record
Let me summarise our thesis: dayrates will remain elevates for 3-6 months as we run out of storage! Assume world economy is loosing 10mb/d of demand in Q2 while Saudis push more oil into market, it may take <90 days until all storage capacity of 900-950mb is used up!
Also, note that currently, Ship Owners are not willing to close deals (on sub = on subject, ie not fixed) despite current elevated levels as scramble for tankers continues...
And now listen to the CEO of Frontline explaining why the next 2 quarters may well be enough to pay a dividend yield of 50% or so...
soundcloud.com/dnb_podcast/ta…
soundcloud.com/dnb_podcast/ta…
