One of the world’s most respected tanker brokers has warned that the markets are harder to predict than at anytime in recent history.
In a market report headlined ‘Tanker markets are more uncertain than ever’, New York-based Poten & Partners said a combination of factors has made forecasting the direction of the tanker market increasingly difficult.
OPEC+’s decision last week to raise oil production in January by 400,000 barrels per day in line with their long-term plan to unwind last years’ production cuts by September 2022 caught many by surprise. Many analysts expected the oil producing cartel to announce a production freeze against the backdrop of sharply lower oil prices due to the emergence of the new omicron variant of Covid-19.
“On the face of it, this appears to be relatively good news for the tanker market, but OPEC has kept the door open to change their mind and reverse the increase or even lower crude oil output if the Omicron variant ends up having a strong negative impact on oil demand,” Poten pointed out.
In addition to the vagaries of future oil demand and supply in the context of a continuing global pandemic, Poten said the tanker market must also consider government inventory releases and the potential impact of a new Iran nuclear deal, for which the negotiations have started up again.
Late last month, just before the World Health Organization declared omicron a new variant of concern of Covid-19, a group of large oil consumers, including the United States, the UK, India, Japan, South Korea and China, announced a coordinated release of oil reserves. Most of the crude – 50m barrels – is scheduled to come from the US Strategic Petroleum Reserve (SPR).
“A release of oil from reserves is obviously a short-term negative for the tanker market. However, reserves will need to be replenished and this could be supportive of tanker rates further down the road,” Poten observed.
Last Monday, Iran and the remaining parties to the Joint Comprehensive Plan of Action (JCPOA) – China, Russia, France, Germany and the UK – restarted negotiations on the possible return of the US to this agreement, which limited Iran’s nuclear activities in return for the lifting of sanctions. The US is indirectly participating in the negotiations.
“If a deal is negotiated and the restrictions on Iran’s oil exports are lifted, this could add about 1-1.5 million barrels per day of oil to the market, a boost to the tanker market. This would also render the rogue tanker fleet obsolete and – lacking legitimate other employment opportunities – these tankers may well be retired, providing an additional boost to the market,” Poten predicted.
If the negotiations are not successful, this would not necessarily mean a return to the status quo, the New York brokerage suggested. To keep the pressure on the Iranian regime, Poten expects that the US will step up its enforcement efforts to ensure compliance with the sanctions, making life more difficult for both Iran and the owners of the vessels plying these illegal trades.
Concluding its tanker outlook, Poten said conditions were “highly uncertain”.
“Oil supply and demand balances can easily swing from surplus to deficit depending on the impact of the Omicron variant on the global economy. On top of that we must consider the uncertain timing and volumes of OPEC+ production increases and SPR releases. The coming months will probably also decide the fate of the Iran Nuclear deal, the outcome of which will be key for the tanker market. Unfortunately, with so many uncertainties in 2022, it remains very difficult to predict when the tanker market will get on the road to a sustainable recovery,” Poten stated.