Contengo Coming? Revival for Tankers

In Oil, the hurricane season continues fiercely and is a support to oil although the Brent went down from $46 to $39 in the last two weeks. This is due to a stop in US inventories downward trend, a start of more production by OPEC, the end of the US driving season but overall, the threat linked to COVID 19 and its impact on road transportation should lock downs start again… We think that governments cannot afford a second episode of lock downs and whilst the shale oil continues its collapse , we maintain our view for a strong oil market in 2021/2022 «fueled « by demand at 95% of 2019 lagging supply at 88% of 2019. Traders start to snap up VLCCs for several months cargoes as they see the contango increasing. So far, a spread for Brent over 6 months is starting to be over $3 which would justify paying up to $ 30,000 a day, a level still higher than the spot rates today. Consequently, Tanker shares have started to recover in the stock market. Both EURONAV and FRONTLINE were up 5% last Friday but still on average down 30% YTD.

As Offshore wind farm installed capacity should reach 1.3 TWh by 2040 triggering a 12% increase per year or roughly 20,000 new Offshore wind towers and turbines to install, the WTIV or Wind Turbine Installation Vessel market is the NEXT HOT SPOT in shipping. Vessels command a price tag of $ 290-320 miilion and a day rate of $250,000 today. By 2023, there should be a shortage of such vessels and we can expect a big inflation in day rates up to 2025… until eventually the supply becomes over crowded . Today the main players are the Norvegian BONHEUR and OHT which will be listed on MERKUR next week. SCORPIO bulkers has also ordered such a ship and there are rumours that they could dispose of their bulker fleet to become a large player in the WTIV market, a sure game changer for their stockmarket life…

In the High yield world, the week was dominated by TRANSOCEAN debt restructuring which was successful but nonetheless greeted by a high level of scepticism. The new bond should trade at 55/65 which is not a success but we think that TRANSOCEAN bought itself three years to benefit from a restart of the deep offshore exploration by 2022. With the problems encountered by shale oil, we feel deep offshore should enjoy a revival in the next two years and with it, the whole distressed market of oil services vessels.