In a release accompanying its 2019 year end results, tanker operator Euronav revealed that it was being forced to write down the value of the remaining stocks of the 420,000 tonnes of VLSFO it had acquired and stored in anticipation of price rises from 1 January 2020.
According to the statement, “A combination of rapidly increasing crude supply and a buoyant market for crude storage is underpinning a very robust tanker freight market and strong cash generation presently. Management is however cognisant that there is currently a substantial reduction in crude demand due to the worldwide impact of the Covid-19 outbreak and more specifically to the policies to restrict the movement of people. As a consequence, a significant portion of the oil currently produced and transported is destined to crude inventories. The build-up of these inventories could in the future impact the demand for the oil transportation sector and in particular the tanker markets. At the same time, a lower crude price environment is beneficial for the shipping companies in general as it leads to lower fuel costs.
The LSFO (low sulphur fuel oil) purchased by Euronav last year in anticipation of IMO 2020 price volatility and which has not been consumed yet will be subject to a mark to market valuation at the end of the first quarter and will lead to a write down as the current market is significantly below the acquisition cost. The purchase of this compliant fuel provided protection for Euronav in Q4 2019 and Q1 2020 during periods of very high fuel spreads and Euronav is currently using cheaper feedstock from buying LSFO in the open market. Euronav will provide more detail with the publication of the Q1 results in May.
Overall and at this stage it is still too early to quantify the impact due to the Covid-19 outbreak on our future results and any forward-looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks related to the current Covid-19 outbreak”.