Building for a better tanker future

Building for a better tanker future

Ahead of his opening role at our Maritime CEO Forum in Singapore next week BIMCO’s Peter Sand has some good news for hard pressed VLCC owners.

A total of 50 VLCCs were ordered in 2017. Was that a lot, or not enough? Only time will tell. But the fact remains that 2017 was the worst year for VLCC spot earnings since 1994. Still owners from Greece, Norway, Singapore, Japan and China knocked on shipyard doors in South Korea, Japan and China, ordering the largest crude oil carriers – mainly for delivery in 2019.

Speaking of 2019, that may be the first year of ending the oil supply cuts by OPEC and like-minded oil producing nations (unless a new deal extends it). Keeping that in mind, 2019 will surely see a reshuffling of some long-haul crude oil tanker trades if the oil supply cuts are discontinued.

So what changes will bring around upside potential, as well as downside for the tanker market? On the upside, increased oil demand from the US and Europe may switch some demand back to OPEC exporters in the Arabian Gulf, from present shorter-haul suppliers. On the downside, the all-important Far Eastern importers may go back to the Arabian Gulf for supplies, at the expense of South American exporters like Brazil and Venezuela. Change will also come from the preferred crude slates of the most recent refinery expansions.

US crude oil exports are now more significant to the tanker market than exports of US oil products. Much longer sailing distances for crude oil outweighs the higher volume – but shorter hauls- on oil product trades. Keeping crude oil flowing from the US to importers more than 7,000 nautical miles away, is a key element for the recovery of the crude oil tanker sector earnings.

So, are 50 VLCCs a lot or not enough? In an oversupplied market, no new tankers are really needed from a fundamental market balance perspective. From a narrower perspective, it merely topped up the supply of crude oil tankers for 2019 to match that of 2018.

In the meantime, in the oil product tanker sector reality has surely hit home as new orders have been few since August 2017. The lack of a solid winter season in the freight market to boost earnings as well as business confidence, made owners and investors shy away from newbuilding yards – just as fast as they returned – in December 2017.

Contracting activity for newbuilding in the oil product tanker sector has been relatively subdued since early 2016. This is positive from a freight market perspective, at it means that fleet growth in 2018 and 2019 will be at a five-year low – around 2.5%.

Since global oil stocks are still way above a level that supports tanker demand – fundamental market improvement can only happen with a slow growing fleet size.

Elevated stocks impact the tanker industry via a lower level of trading demand growth and a lower level of consumption-driven demand growth as stocks are drawn down.  The exact opposite of what is happening with stock building, which the tanker industry enjoyed from Q4 2014 to Q1 2016.

BIMCO estimates one target point to be approximately 1.4m bpd higher for global oil stocks than before the stock building started in 2014 if you adjust for the oil demand growth since then. Currently the global oil stocks are 2.9m bpd higher, down from 4.0m bpd in the second half of 2016.


This article first appeared in the latest issue of Maritime CEO magazine, published earlier this week. Splash readers can access the full magazine for free by clicking here

Related Posts

Leave a Reply