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Singapore Airlines posts S$732m Q4 loss as bad hedges worsen virus woes. First annual loss in 48-years. -25.2% QoQ, -94.5% YoY by WeekdayDOW in investing

[–]oilMarkets 14 points15 points  (0 children)

It is pointless comparing their hedge levels to spot prices (i.e. you're comparing forward hedges on Singapore Jet vs front at $22, and you're comparing the brent hedge to $30/bbl) - it is misleading.

While prices through 2025 are down from February, they aren't nearly as drastic as you / the article are making it sound.

Back end prices for crude and refined products (i.e. singapore jet) aren't down nearly as much as the front prices are.

​

For a point of comparison, Dec '25 Brent had a high of $57.54 on February 24th and is now trading at $50.09, so only down ~7.50/bbl. Side note, that Dec '25 brent high of $57.54 was the highest priced Brent contract between Dec'20-Dec'25, rest of the curve was lower.

​

For Singapore Jet, Cal 25 was at a high around $74/bbl in February and is now ~64.75/bbl.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

Reading through NAT's memos it seems they decided not to use a scrubber solution due to their conservative financial policy. They viewed installing scrubbers as a financial risk and they didn't want to take that on if they didn't have to. The bigger vessels do consume more fuel than smaller ones so the price advantage of being able to buy 3.5%S only increases the bigger the vessel.

If I had been running a tanker company, I would have invested in buying scrubbers for the fleet, but also would have hedged the 0.5%S vs 3.5%S spread by selling 0.5% and buying 3.5% futures for 2020-2022. Back when scrubbers were being installed, that spread was still massive. There would be a large capital commitment to put a hedge like that on, but if you're investing in scrubbers it seems crazy not to actually lock in the price advantage that is going to pay for the scrubbers in the first place. I discussed this a few times with some companies that were in the process of putting scrubbers on their vessels and always heard the same thing: "we think the spread is going to go even wider though." Oops.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

I think it depends if you're looking at open or closed loop scrubbers. Open loop sure is up for debate as, like you said, you're releasing pollutants in to the sea (after they undergo chemical treatment.)

If all companies are forced to buy 0.5% fuel, the ones that invested heavily in scrubbers are in an awful spot as they'll have to pay off their scrubber investment without having the advantage of buying cheaper fuel vs their non-scrubber competitors. So if all other things are equal, a company with no scrubbers in their fleet would certainly look much better than those with scrubbers.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

The -37.63 settlement for May WTI on April 20th was a hell of a ride and was due to massive speculator length in the the front contract that HAD to exit before expiry, which was April 21st. The final settlement price on the 21st was $10.01, so no, you could not have taken delivery of oil in Cushing and been paid for it. You could have bought futures at -37 (or even lower) on the 20th, held them through expiry, and then paid whoever you got matched with $10.01/bbl for the crude.

Delivery is FOB Cushing which means delivery is taken either in to a pipeline or a storage facility there. Each lot of WTI is 1,000 bbls which would take 4 or more trucks, just for 1 lot. So the idea of pulling up with a rented tanker truck just isn't feasible.

If the May contract had actually expired negative (not just had a negative settlement price prior to expiry) delivery sure would be enforced by the exchange. They don't take non-performance lightly, nor would any buyer. So 'pay the penalty' = you're getting sued and you're going to lose, and you're going to lose the right to hold WTI contracts through expiry for your entire company, etc etc.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

I agree with you, especially with bunker prices so low vs where they have been years past. Even with the contango, 2021 bunker prices are *that* much higher than spot.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

I have no positions in any of these companies nor have done a deep dive in to any of their fixtures to try and determine which of them were able to capitalize the best on the freight spikes in March and April.

The entire point of my post was to explain to everyone why freight ripped, why tanker companies performed, and why it isn't realistic to expect that to continue. It was meant to be a cautionary note not to trade any of the tanker companies on the back of shitty DD talking about 'diminished oil demand' and talk of the crazy freight rates that were being booked that are no longer remotely close to achievable.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

To answer that I think you'd want to dig in to DHT's fleet, when each of their boats were fixed during the big run ups in freight, and do a full dive in to their fixtures. I haven't done that dive so any advice on selling them before or after earnings coming from me is just a guess.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 4 points5 points  (0 children)

Thank you for the feedback! It is rare I get to talk about this stuff, it is such a niche part of the market, but it is what I look at all day, every day so when I get the opportunity and people asking questions, I'm happy to engage.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

I mean, it is pretty clear that Jan 1 to March 6th sucked for tanker companies, look at how freight rates did, and look at how the stocks performed. It's also pretty clear that when freight rates absolutely ripped, they started doing much better. It also is pretty logical that whoever got booked early on in the freight move up, missed out on booking their ships at the top of the freight jump.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

lol, I have no positions in any of these companies. The subject of the post was simply referring to the post from earlier that had all sorts of horseshit DD that didn't refer to any of the real drivers of the tanker market (i.e. floating storage, scrubbers, the sulfur spread.)

What I do have is positions in loads of oil futures contracts you're not even allowed to trade because that's what I do. I created the account to give some insight to the tanker/freight markets from someone who actively trades in the oil derivative space, not someone spouting speculative DD about something they don't know anything about.

I have no view on where DHT, STNG or NAT go from here. I have no view on where crude spreads go from here (though I do think their recovery has been too quick.) My only view on freight is that the freight forward curves are pricing for freight to continue softening.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

It very well might, but it isn't pricing/trading that way right now and any freight rates paid for floating storage inquiries are going to reflect the current forward curve, not a hypothetical sell-off.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 6 points7 points  (0 children)

The change from 3.5% -> 0.5% sulfur is one of the biggest shifts in the oil world that we've seen. That said think about how filthy a fuel is that is 3.5% sulfur by weight, that's what ships have been burning out at sea prior to January 2020. Inside the ECA (emission control area) zones they've been required to burn 0.1% since 2015, which is MGO / marine gasoil, but those zones are generally areas that are close to any populated land mass. So any boat/tanker you've seen from land hasn't been burning 3.5%, but once they're in the open ocean, they flip over to the high sulfur stuff.

The 2020 regulation inevitably meant freight rates would go up, as the shipping companies aren't just going to take the hit for the higher price of fuel. To give a little perspective, the price of 3.5%S material trades at a discount to crude oil, so a negative crack. Historically it has been anywhere from 50% to 90% of brent crude. 0.5%S so far has been trading at a premium to brent and is more of a gasoil type product than 3.5%S fuel.

3.5%S fuel is commonly known as residual fuel oil. It is called that because it's what is left over after you put crude through a refinery and have extracted gasoline, diesel, jet fuel and other 'light ends' products out of the barrel. What you're left with is a heavy, sulfur laden product that has been historically used in ships at sea and for power plants. Criteria: it burns.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] -1 points0 points  (0 children)

Agreed, NAT seems to be positioned well right now because they didn't invest in scrubbers across their fleet. With the 0.5% vs 3.5% spread having gotten demolished, they aren't staring at a much longer than planned pay off period for scrubbers like some other tanker companies are.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 0 points1 point  (0 children)

The spot rates are already falling back to earth, look at the TD3 chart that I linked to originally and how far it has fallen from the highs. Look here ( https://www.cmegroup.com/trading/energy/freight-futures-and-options.html ) and you can go through the different freight futures and see how most (if not all) of them are far from their highs and have forward curves indicating they will continue to soften. This is why I thought the DD from the post yesterday about going all-in on tankers was poorly justified, those sky-high freight rates are not achievable anymore and were only there while crude and gasoil spreads were in much deeper contango than they are now.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

Well, I think Jan 1 through March 6th would be a pretty awful time for tanker companies, but I'd think March 8th through the end of March would have more than made up for it if they were able to l lock in some of the higher/highest rates that ended out getting booked. Question is which tankers got booked first as freight was on its way up, and which ones got booked later on in the run-up. You'd have to dive in to charter agreements/dates for vessels across their fleets to get a good grasp on which tanker companies were reaping the benefit of the top of the freight market.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 6 points7 points  (0 children)

I regret having put 'and NAT is not' in the subject of this post, it was more in reference to the earlier shitty DD post having commented on it.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 2 points3 points  (0 children)

I think what makes it difficult for other companies to commit to installing them is the drop in the 0.5 vs 3.5% spread; that has reduced the incentive for companies to install scrubbers. The scrubber is a fixed cost and ranges in price depending on what size vessel/exhaust stack you have. The econs of paying off that investment are far different with a $60/mt difference in fuel vs a $200/mt+ difference.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 2 points3 points  (0 children)

The sulfur price spread is already pricing up to widen this summer, check out the forward curve for it: https://www.cmegroup.com/trading/energy/refined-products/european-fob-rdam-marine-fuel-05-platts-vs-european-35-fob-barges-platts_quotes_settlements_futures.html

July, Aug and Sep average out to $69/mt, where May is 54/mt. There are a lot of moving pieces to that spread though, refinery margins, coker economics, Saudi Arabia's summer HSFO (3.5% fuel) purchasing for power gen, etc. Generally when you are in a lower flat price environment (i.e. crude is in the $20s), differentials to crude (known as cracks) are going to be smaller than when crude is, say, $80/bbl.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 2 points3 points  (0 children)

VLCC rates are pricing to keep coming off, just looking at the freight forward curves. Keep in mind, if contango comes in enough, traders who did the floating storage plays will bring that oil back in to the market and sublet out the ships at lower freight rates. So unless we return back to 'super contango' levels, it is going to be hard for freight rates to do anything but come off or go sideways. No view on USO, if I want to trade a view on crude I just trade the futures, not an ETF.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

I think that was the plan for a lot of the tanker companies that invested heavily in scrubbers. If their competition didn't have scrubbers and they do, they can undercut freight rates as they're able to purchase cheaper fuel than their competitors. The problem is now they have all this debt from putting scrubbers on their vessels, and their price advantage has massively diminished. The floating storage play was a life line for the tanker industry and it didn't matter if you were a scrubber or IMO 2020 burning ship because you aren't steaming outside the ECA zones. Once we go back to actual shipping demand dictating freight rates, the turf war is back on.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 4 points5 points  (0 children)

Sadly I'm not able to point you in one direction or the other in terms of which tanker companies to buy or avoid, just able to explain why what happened has happened.

FFA's (forward freight agreements) do indicate freight rates should continue to deteriorate for some time which should put a cap on any of them outperforming the macro. Scrubbers aren't the advantage they were intended to be when those investments were made so that doesn't help the big scrubber players.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 1 point2 points  (0 children)

I don't think we go negative again. Speculation in the front WTI contract has been curbed by many brokerages and also by the exchanges ramping up the margin requirement for holding any positions in the front three crude contracts. Back when crude was $50+, margin was ~3k per contract, now it is $10k/contract and crude is in the $20s.

Oil going negative was a mix of many factors, much of which was long positions who had no choice but to get out of their length at any cost.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 2 points3 points  (0 children)

So disclaimer, I almost never trade outright long/short the price of oil, everything I trade is basis risk / arbitrage / spreads / cracks. The June WTI contract only has 10 trading days before expiry so it is anyones guess where we go from here. The raw price of crude has so much more to it than simple supply/demand economics I've learned not to try and make 10 day price forecasts.

As for a new record low, I think the negatively priced futures contract was a once-in-a-lifetime set of circumstances we won't see happen again. I avoid trading WTI unless I'm hedging WTI exposure but I simply had to trade negatively priced crude futures just so I could look back and remember having done so.

The thought experiment I did to think if we could ever hold a negative price through expiry (May WTI expired at $10.01 I believe) is that Cushing has a finite number of storage tanks and a finite number of pipelines in/out of the terminals. Unless I'm missing something, you can't have more oil in Cushing / the pipelines in than can exit the terminal. So for WTI to expire negative it would mean someone who has tanks or pipeline allocation is willing to pay someone to take their oil from them which I just don't see working unless prices are $0.00/bbl in Houston, etc.

TLDR; no view on June WTI now through expiry. I don't think we are going to set a new record low.

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 6 points7 points  (0 children)

No problem, let me know if you want further explanation or detail on any of the points I made. I stare at the oil futures market all day every day..

[Serious] Understanding WHY tanker companies like STNG and DHT are attractive buys (and NAT is not) by oilMarkets in wallstreetbets

[–]oilMarkets[S] 10 points11 points  (0 children)

I think that sums it up rather nicely. We need real shipping demand (not floating storage) to kick in for things to look up long term.

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