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Weak economic growth in the OECD and China has tempered expectations for the balance of 2023 while high inflation and the increasing cost of servicing debt have lowered hopes for consumer spending this year. Consequently oil demand growth is slack, and this is leading to fears that OPEC could further cut oil output after its cut earlier in May which was announced in April. Only in China does oil demand seem set to grow at any pace, but that growth is a rebound from last year’s pandemic lockdown level. Industrial activity in China remains sleepy and slow to wake from the lockdowns, with Caixin’s PMI showing a contraction for April, with a score of 49.5. Oil prices have been rangebound after a volatile start to May when WTI fell from $74 to $68 in a few days, but then the trend has been slowly upwards back to around $74 again before a further fall in the last week of May to around $71. This is a reactive market without a clear trend signal. Fears of further OPEDC+ production cuts could drive prices north despite weak demand signals. None of this is helping the crude oil tanker markets which have had a mixed May; the BDTI rose in the first two weeks from 1,033 to 1,280 points, its highest position since the start of April, but then subsided to 1,238 points by May 25. Owners and brokers have felt nervous as fixture counts for VLCCs in the Middle East have been lower than they would like, though decent levels of business out of West Africa have helped. As one broker wrote towards the end of May, “On the VLs it is looking like a tough summer” – only a matter of weeks after there was clamour about the start of a tanker super-cycle. The Baltic Exchange average of VLCC earnings for the first 25 days of May was $17,269 compared to $36,626 for April and $60,032 for March. On May 26, VLCC earnings were reported as $15,791, only a fifth of their peak of over $70,000 a day in early March. That West African kicker has supported suezmax earnings which have slid less than VLCCs, averaging $52,809 for the first 25 days of May compared to $57,080 in April and $76,678 in March. Aframax average earnings have been $57,205 in May, up from $48,399 in April but down from $76,133 in March. Having said all that, May to August are usually flat months in the crude oil tanker freight markets. For many owners, it is a case of following the equity market adage of “sell in May and go away ‘til Labor Day.” As per the usual recent pattern, when crude oil tanker earnings go up, product tanker earnings fall. The BCTI started May at 763 points and had lost 93 points to sit at 670 points by May 26. Still, the monthly average conforms to the expected seasonal pattern, though the May 2023 average of 652 is a third off the May 2022 average of 966 points. The Pacific market, which was hot in March and April, gave up many of its gains in May, with the Baltic’s Pacific MR basket down 14% month on month at $33,326 on May 25 and averaging $33,625 for the month compared to $39,751 in April. Meanwhile, the Atlantic MR basket doubled in late May from $15,748 on May 22 to $36,010. The Pacific market has been stronger than the Atlantic since late March, so this is a turnaround, and it is based on a doubling of eastbound rates from the USG to ARA, to $18,142 a day on May 26 compared to a month-earlier sum of $5,907. USG exports to the Caribs have also performed well in March, with earnings up to $35,940 a day on May 26 compared to $11,813 a month earlier. Conversely the Med has been weaker, with LR2 rates from Algeria to Japan for instance falling by nearly 80% in May to sit at $9,500 a day on May 26 and LR1 cross-Med rates down by nearly two thirds to sit at $10,310 as of even date. The tanker markets look a bit topsy-turvy but the monthly averages appear steadier, ironing out the noise as they go – but the much vaunted super-cycle appears to have evaporated, or at least postponed.

Whither the tanker super-cycle?

Were we wrong to call this an epic year for tanker earnings? It’s still too early to call.

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