MARKETS IN PANIC DUE TO CORONAVIRUS
A pitch-black week for investors: Coronavirus triggered both a 'Black Monday' and a 'Black Thursday' for global financial markets within one week. Investors panicked about a further spreading of the virus in Europe and the US, travel bans and - in their view - disappointing measures announced by ECB. The NYSE suspended trading temporarily following sharp contractions. On Thursday, the DAX lost 10 percent, the EuroStoxx was down 11.6 percent, and the S&P500 closed 9.5 percent lower than the previous day.
The maritime stock universe suffered severely as well. The Offshore and LNG sectors lost more than 30 and 21 percent w-o-w, respectively. The dry bulk, container and LPG sectors dropped by 13 to 17 percent, the liner sector 'only' by 6.6 percent. As a big surprise and almost a miracle in the midst of the panic, the crude index soared by about 18 percent, followed by the product tanker index with a plus of 1 percent in its wake.
What has happened? Geopolitics has struck again, and this time to the benefit of the crude shipping markets. After the OPEC+ members could not come to an agreement, Saudi Arabia decided to flood the market. Subsequently, the oil price dropped by more than 30 percent, turning the oil markets into contango. This has made floating storage accretive again. Further, Saudi Arabia's national shipping company, Bahri, dramatically increased their demand for spot VLCCs. This lit the fire on spot VLCC rates which skyrocketed from USD/d 30,000 to USD/d 210,000 on the benchmark AG-Far East route. Owning 41 VLCCs themselves, Bahri added 25 VLCCs in one week. The vessels are reported to be fixed for the US Gulf, Europe and the Mediterranean. As it seems, the vessels are needed for the targeted Saudi Arabian exports and meant to tackle competitor Russia who rejected oil production cuts earlier in March. While the latest high levels of fixings are unlikely to be sustainable for a longer period of time, crude tanker owners can earn a tremendous amount of money, at least for some time.
Our trading strategy benefitted as well from this development as we increased the overweight in crude stocks. As a result, the trading strategy had to endure a comparatively small loss of 3.3 percent w-o-w. By contrast, the Dow Jones Global Shipping Total Return Index, our benchmark, lost 9.1 percent. We will try to ride the crude tanker wave as long as possible and get down in time.