Yep.
That's the guy.
He was on some radio interview or something that someone on another site had posted the link to. The only reason I clicked on it was because the poster said something to the effect of "this is brilliant".
I listened for a few minutes... like I said... oil tankers and me have a jaded history. I bought some Greek one for the divy waaaaay back when and the thing tanked. Sank. No pun(s) intended. Tsakos.
But reading what he wrote on that link you just provided, it does sound like the guy was ahead of the game on this one. I mean he's obviously no dummy.
This:
Interest rates are effectively zero today, so you have no finance costs, your only real cost is renting the tanker. Let’s say you put away 2 million barrels (the size of a VLCC) for a year and shorted futures to lock in a $22 million profit (2 million barrels at $11 each). How much of that profit do you think you have to share with the owner of the VLCC? If you guessed it was most of that profit, you’re qualified to work for Vitol. Remember, the guys with the tankers get to shop these against multiple firms who can take a risk-free position and leverage it almost infinitely. Say you give the traders $2 million and keep $20 million—well, that’s an insane profit. The sort of tanker that would be chartered for storage is likely only worth about $25 million and has less than $5 million of equity into it. If you own this tanker, you just locked in a four-times return on your equity in just one year. Pretty nice! Now, traders tend to get closer to the front of the curve. You make $8 for the first 6 months of storage and the 3-month curve is even steeper at $5. Imagine earning $5 per barrel, four times in a year? You make $20 in contango. As you can imagine, trading houses want to lock in the tanker and go right into the teeth of the contango. Let’s not worry ourselves with how much Vitol will make—they’re big boys and can take care of themselves. What matters is what the tanker owner makes. Let’s just say he’s making so much he doesn’t mind locking up his vessel for a very long time.
The thing is, we’re going to need hundreds of tankers to store the 2 billion barrels of excess supply. But wait, there’s more!! Think about the oil curve. If oil is in the $20s today, no one is spending cap-ex on drilling. Where do you think production will be in 2023? What about 2025? I bet it’s off by millions of barrels, maybe even tens of millions. Once the margin calls are done, where do you think 2023 oil futures will trade? $50? $75? $100? Have you seen how much stimulus they’re throwing at the global economy each day? It will take some time, but demand will come back with a vengeance. I don’t know where 2023 oil will trade, but I guarantee you it will be VERY steep to the front month. This isn’t a few month contango thing, this is going to last for a while as all that inventory keeps the front of the curve heavy. How long? A 2-billion-barrel surplus getting worked off at a 5 million daily deficit will take 400 days to work off. Meanwhile, the storage cost is going to be astronomical. The front month will be on the floor and deferred months will be into the sky. This will draw in more and more tankers playing every part of the curve with all that free Federal Reserve bailout money.
Now, let’s say that the oldest few hundred VLCC tankers go into storage trades. That seriously crimps the global fleet supply of roughly 800 actively transporting crude. When 26 COSCO tankers were sanctioned last fall, rates went to 10-year highs. What happens when a few hundred leave the transport fleet? Well, rates go to Pluto. At current daily charter rates of around $200,000 to transport oil, a VLCC earns $70 million, which is a stunning return on a 10-year vessel worth about $50 million. Even better, the owner likely only has about $20 million of equity invested. This means that at current rates, the owner makes 3.5 times his money each year. Ironically, despite all of this going on, most tanker stocks trade at roughly half of NAV. This means that they’re earning somewhere around 5 to 8 times their market caps in a year. By the way, this isn’t theoretical. There have been almost 100 fixings in the past 10 days and almost all are north of $150,000. There have been dozens of time charters for storage. It’s happening. Even if rates back off to $100,000, tanker companies will earn unfathomable returns.
