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Tanker owners must look after the supply sector


Tankers have experienced a tough start to 2017, as freight rates for both crude and product tankers continued to decline, following a brief lift at the year-end.


VLCCs may not yet have bottomed out, as by 7th April, 2017, average earnings stood at $18,853 per day, down from $63,284 per day on 16th December, 2016, BIMCO said in a report.

The demand situation for both crude and product tankers in 2017 and 2018 is closely connected to the destiny of worldwide oil stocks. Thus far, we have seen supply cuts from OPEC, from their highest supply level ever at 33.9 mill barrels per day in October, 2016. However, we have also seen an increase of supply from the US, lifting US crude oil stocks to their highest level, while global stocks have sidestepped.

BIMCO said that it believed we must wait until the second half of 2017, when global oil demand picks up, to see an eventual drop in global oil stocks.

Focusing on the oil product tankers, March proved to be a relief. Handysize tanker earnings even surpassed that of crude oil tankers, reaching $23,984 per day on 24th March. On that day, Suezmaxes reached only $22,700 per day.

Since the removal of US crude oil export restrictions in December, 2015, the story has been developing. Shipping has certainly benefited strongly and quickly, not so much in sheer volumes, as US crude oil exports went from 465,000 barrels per day to 520,000 b/d (+11.8%), but exports started to flow to worldwide destinations and not just cross-border into Canada.

In 2015, 92% of US exports went north but in 2016, that share was just 61%. Other destinations found in the top five included The Netherlands, Italy and China. South Korea, Japan and the UK, which were all served by tankers. US crude oil imports have also grown, benefiting crude oil tankers even more.

In addition, US products exports keep rising, going both short-haul to Mexico, Caribs and South America and long-haul to Japan, China and India.

The total amount of tankers demolished was very low last year. Owners appeared more focused on taking delivery of new ships during the period.

This has to some extent now changed. In 2016, 2.6 mill dwt was sold for demolition. By end-March 2017, 0.9 mill dwt had left the fleet for recycling. Although slightly busier than 2016, thus far it has been a slow start to what BIMCO forecast will be a busy year for tanker demolition.

Freight markets and asset values are expected to have yet another year under pressure. Demolitions are forecast to rise fourfold to a total of 11.5 mill dwt, out of which 9 mill dwt i forecast to leave the crude oil tanker fleet.

BIMCO expects this year’s crude oil tanker deliveries to be on a par with 2016, which saw 23 mill dwt of new shipping capacity. This highlights the need to cope with the supply side as demand growth will not support the market to the extent it did in 2016. By the beginning o April, 9.8 mill dwt had been delivered with just 0.7 mill dwt of crude oil tanker capacity being demolished – including one VLCC.

In terms of new orders, by the same date, there were 38 new orders totalling 5.7 mill dwt, including 16 product tankers with a total capacity of 1.3 mill dwt. The 12 VLCCs and other orders resulted in a rise in the crude oil tanker orderbook during the past two months, which is quite amazing considering the present challenges in the market, BIMCO said.

A record 12 VLCCs were delivered in Janua this year, which brought the VLCC fleet above 700 ships.

For product tankers, 2016 proved to be a six-year high for deliveries, with supply growing b 6.1 %. By the beginning of April, 2017, the fleet  grew by 1.3%, as it aims for 3.2% for the full year. BIMCO aid that it expected demolition of product tanker tonnage to be three to four times higher than 2016, at 3 mill dwt.

As cargo volumes are not expected to grow much this year, the increase in demand must come from longer sailing distances and changes to the volumes shipped from one country to the next.

China rules the crude oil tanker market, having been solely responsible for the increased crude oil tonne/mile demand growth since 2010. The country is set to repeat this in 2017. Thus far, Chinese car sales have supported this forecast. Although the subsidy was reduced in 2017, the numbers are holding up.

The US could spoil the party, however. As discussed above, US imports and domestic production have both contributed to rising crude oil stocks. A continuation could prove difficult to uphold.

This year is proving to be one of change for tankers, as was indicated during 2016, as freight rates softened. After two years of solid demand growth, 2017 will be a year of tepid demand growth of around 0–2%. As fleet expansion is also slowing down, though still at a higher pace than demand, shipowners will have their work cut out.

In May, BIMCO will extend its series of analysis on the ‘Road to Recovery’ for the shipping markets by looking at the crude oil tanker sector.

 

 

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