Chris K

There are two separate tanker markets. You have the dirty and the clean which is the crude and the product. Rates have reached all time highs for both, the dirty tanker rates are now dropping to still high but more sustainable rates while the product tanker market remains elevated. Im on the product tanker side of the bet through STNG, Scorpio tankers. Refineries are trying their best to continue to operate at high utilisation rates so product tankers are being used for storage too. The space is totally divided between bulls and bears, shorts have increased over the last week or two in many of the companies at a time when rates are at all time highs. The general thesis that I see from bears is that demand has plummeted, will remain subdued while production is being stopped, so less tankers needed to transport oil than usual. The bull side has a few aspects; 1. New tanker order book (tankers have a certain life after which they get scrapped, some companies wont use old tankers to transport oil due to contamination potential) is at all time lows due to tanker rates being low over the last few years and what is being built has been delayed due to virus restrictions leading to a tighter market. 2. Tankers normally being used for transport are being used for storage and so are taken out of the normal pool available due to over production and land storage likely to be full (to the extent that it can be) by next month. 3. That the proposed production cuts wont be enough to stem the overproduction any time soon meaning further tankers will be taken out of the transport pool. 4. There are examples of long term contracts (12-18 months) being locked in at high rates today by oil industry players, why do that if you expect tanker rates to drop in the coming months? The share prices of some of the product tankers are 50% off 52 week highs like STNG at circa $20. It hit a low of circa $13 during the big sell down in March. Many names releasing Q1 and showing Q2 guidance this coming week. The risk is skewed to the upside based on the above and other factors in what could be a sustained high rate environment.