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For a neat précis of the tanker freight markets over the last month, look no further than comments Kim Ullman made in his final market report for Concordia Maritime, the company he has led since its launch, as he retires at the end of this year. Ullman said, "We expected both oil production and freight rates to rise when stock levels were at or below the five-year average. However, this has not been the case…The map was right … but the reality wrong." Or, to put it pithily in the words of former boxer Mike Tyson, “Everyone has a strategy until they get punched in the mouth.” The freight markets for both crude oil and refined products tankers have lost even the weak momentum they gathered in Q3 and the early part of Q4 and we are running out of ways to describe just how bad 2021 is going to be overall. By early November, global crude oil and oil products inventories were starting to fall and the global oil transport system was starting to creak noisily into action. But then the arrival of omicron and the return of transport restrictions we described last month kicked the oil and the tanker markets back into neutral gear, with the possible exception of the transatlantic products market. At the start of December, OPEC decided to continue its production increases of 400,000 barrels per day each month, at least for another month. This was not enough to drive crude oil tanker earnings to operating profit levels. The fourth wave of Covid is overtaking the tanker freight markets, reducing oil demand expectations and prices. S&P Global Platts Analytics forecasts that global oil demand will contract by a sharp 1.6m barrels per day from the fourth quarter of 2021 to the first quarter of 2022, due to seasonal factors, the impact of higher prices and outbreaks of Covid-19 infections in some countries. Reality may indeed turn out to be even wronger than Kim Ullman feared. According to the Baltic Exchange, VLCC time charter equivalent earnings are plummeting, reaching $-10,262 on December 10. The monthly average is $-9,017 and the year to date average is $-7,962. Trading house Trafigura has called 2021 an “annus horribilis” echoing the Queen of England’s view of the year 1992 when most of her children divorced or separated and her castle at Windsor partly burned down. There have been chinks of light. Seasonal weather in the Mediterranean and Black Sea has had no effect on Mediterranean voyages as European refineries continue to draw in their horns, due to collapsing crack spreads. Yet average suezmax TCE levels leapt from $-880 per day on November 30 to $11,512 on December 10, led by a zesty increase in rates on the WAF-UKC route, on which earnings have risen from $-179 on November 26 to $14,149 on December 10. Aframaxes are faring better still, at least compared to larger crude oil tankers, with the Baltic reporting average aframax earnings at $7,971 on December 10, up from a low of $2,735 per day on November 26. The year to date average daily hire rate for aframaxes remains a paltry $3,533, not enough to cover costs. In the products tanker markets, the benchmark TC1 route from the Mid East to Asia remains becalmed at around $8,800 a day for the last month and $8,121 on December 10. The year to date average is $5,622 so there has been improvement. But earnings remain below operating cost levels for many operators. The Atlantic MR tanker markets have gained some traction, leaping from $9,525 onNovember 29 when the market reopened after Thanksgiving to $17,601 on December 10. US strategic petroleum reserve withdrawals of 20m barrels that were announced in August have now mostly delivered, having been planned to take place between October 1 and December 15. As that crude is processed by refineries, immediately the prospect arises of gasoline imports rising to the kinds of levels that will soak up spare capacity in the transatlantic MR tanker fleet. US oil prices, stock prices and stock futures rallied in mid-December, taking freight rates with them. This may be driving the welcome increases to levels nearly three times higher than the year to date average of USD 6,434 on the Baltic MR Atlantic basket. MRs are doing better in the Pacific too. Having reached $11,824 per day on average in August, they fell to $6,569 in November but have recovered in the first 10 days of December to $8,338. This may be due in part to the kinds of congestion related to the pandemic especially in China. It might also be to do with the withdrawal of much Chinese gasoil from the market. Chinese oil products exports quotas are running out with 33.7m tonnes of distillates exports completed by the end of November, out of 37m tonnes of quotas for distillates and 11m tonnes of fuel oil. Both Sinopec and PetroChina have announced gasoil export cuts. The peril for tanker owners does not end with this terrible year. Some 200 tankers have been ordered this year in spite of all the red ink splashed about. According to data from Shipping Strategy, the VLCC fleet will grow by 4% this year and with an orderbook equivalent to 8% of the fleet, nearly all for delivery in 2022 and 2023, oversupply is baked in unless there is a demolition response to the continuing prospect of weak freight markets. The suezmax fleet will grow only 2% this year but the orderbook is 7% of the fleet, all for delivery before 2024. The aframax fleet will grow only 1% this year but the orderbook is 6% of the fleet. The LR2 fleet will grow 7% this year and the orderbook is 12% of the fleet. The rationale is that refineries will close in the Atlantic and products will be shipped in from farther afield – a rationale that is now 20 years old. The MR fleet will grow 4% this year and the orderbook is 7% of the fleet, so oversupply remains a prospect unless oil demand can really pick up next year, which depends on the balance of vaccines and viral mutations. The tanker fleet needs updating, but part of that includes scrapping older ships – so come on tanker owners, scrap your older ships to save each other.

Tanker reality is wrong

‘Everyone has a strategy until they get punched in the mouth.’ That Mike Tyson quote neatly fits the battered tanker sector this year.

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