Take the $8 contango over 12 months. (Though most arbitrage trades are happening at shorter time intervals at this point).
A VLCC hired would store 2m barrels, and at $40,000/day rate, would cost the charterer $14M.
And $8 contango would imply that the trade would yield $16M gain, but only $2M after the hire cost.
These are rough numbers only, but the point is that profitability is there. Of course, if the same differential in oil futures held at 6 months, then the economics are very compelling.
This situation can move very quickly...and tie up a substantial fraction of the VLCC fleet.
If you search cmegroup and futures, you can see the crude futures curves for yourself. It looks like US crude has relatively little contango ($5.50 a barrel front month vs. 1/16). Brent has more material contango (closer to $8 a barrel over a year). Not quite enough to start sparking floating storage demand, but ad another 2 to 4 bucks a barrel and that could change pretty fast.
Indeed, today's reports indicate that the contango (spread of spot to futures) is largest since 2009. It is now suggested that near 60M barrels of oil may seek floating storage.....still less than the 100M stored in late 2008/2009. That 60M storage would imply the equivalent of about 5% of VLCC fleet.
It is a (nominally) free country, so you are welcome to your opinion. I would like to see NNA reduce leverage, but I am not as debt averse as you seem to be. De gustibus non disputandam. But I think if you expect NNA to ever run at very low leverage levels you will be mistaken.
Huh ? When did this become a discussion of what is the best type of debt to burden your balance sheet ? I don't care if its debt owed to the Russian Mafia. The topic was what should management do with the increase in revenue and it is my opinion they should use it to reduce debt on the balance sheet.
Hmmm, here we disagree a bit. I would like to see the balance sheet somewhat less levered. That said, the bond financing is worth the cost. Bondholders do not require the covenants the banks insist on and they do not have the ability to demand more collateral if the market value of the ships declines. Banks routinely pull the rug out from under the owners' feet whenever there is a blip in collateral value. That has caused huge problems for many owners in the last few years. Meanwhile NNA is free from those problems in large part because of the flexibility allowed by the bond financing.
Your SPOT on trubulator. NNA is a mess when it comes to their balance sheet. The company is highly leveraged with a debt of $1.28 billion. They need to strengthen the balance sheet so they can roll over the debt at far better rates. While I doubt it will ever be investment grade debt they should be able to do better than the 8.25% that they are paying on the big bond part. In a zero percent interest rate environment their cost of capital is too big with annual interest payments on the debt of more than $80 mil. Do you know how many product tankers could be purchased with that annual interest debt payment ?
I'd be surprised if the high rate environment does not last 6 months. Beyond that, it depends on whether the Saudis give up on exporting every last possible drop of crude and whether floating storage demand shows up. What will they do with the extra cabbage? Stock buyback is now authorized, although I think that they have a max price in mind and will not chase the stock. Hopefully they bought on yesterday's bizarre drop. Beyond that, I think they would like to delever the balance sheet somewhat (50/50 debt equity mix vs the low 60s debt they have now), expand the fleet if the numbers work, and perhaps raise the dividend. The last will depend on having room against their bond covenants. If net income shows up in size, bond covenant room won't be a problem.
IMO the real question is what will management do with the windfall profits in the coming quarters? I think we all agree they won't continue forever, but are we looking at another 6 months or 18?
Agreed, rate sustainability is an open question. That said, if everyone becomes convinced that oil is going back up in 6 or 12 months you will see a strongly upward-sloping oil futures curve and that will result in heavy demand for tankers as floating storage.
The real issue is the sustainability of these rates. My guess is that the world will not bet on the sustainability of $55 a barrel oil. As such, they will continue to fill up their strategic reserves and other storage facilities with oil at these prices. Therefore, these tanker rates could stay at lofty levels at least through mid-year.
No matter what happens every single day we get these good elevated rates it does nothing but strengthen the NNA balance sheet. Its nice to have ships in the water during this spike however long it lasts.
Glovis has fixed the 298,300-dwt Nave Neutrino (built 2003) over six months at an indexed rate, it is suggested.
Income will be based on average earnings on the TD3 route, on which rates presently sit above $82,000 daily at design speed, according to Icap.
London broker EA Gibson says FFAs for the first and second quarters of 2015 show TD3 income at WS 50 and WS 42 respectively.
Navios Acquisition bought Nave Neutrino for $43.5m in April as Venture Spirit.
no the statement is not wrong because there is so much oil being produced and not enough tankers to haul and store it hence rates go up and there is plenty of business to be had. That is there logic anyway. Eventually though everything tends towards equilibrium
"Morkedal and Hildan conclude that if Opec retains its present output, 2015 could be a “fantastic year” for the tankers."
Don't you think the above statement is wrong? With falling oil price, why should tanker rate go up?
Analysts are totally asleep at the wheel. Hardly surprising, most probably signed off for the year at Thanksgiving. NNA better see some more positive moves once earnings projections become clearer. I'm counting on that to drive this puppy back towards $5