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Excess clean tankers supply cancels gains from demand: analyst

A massive supply of clean tankers is weighing on the freight rates and nullifying the gains that could have been made due to strong demand for clean products amid relatively low prices, a senior researcher and shipping analyst said.

The total new building orders for clean tankers are equivalent to over 12% of the existing fleet and the corresponding figure for 2017 alone is around 6.5%.

“The demand side is very good but the number of vessels already in waters and still on order continues to increase faster and therefore rates are maintained at lower levels,” Luigi Bruzzone, Genoa-based analyst with shipping brokerage and consultancy, Banchero Costa, told S&P Global Platts.

The clean tankers market is facing strong downward pressure with very low rates, particularly in the LR1s and LR2s segment where total scheduled deliveries this year are equivalent to around 6% and 19% of the existing fleet, he said.

“The market is likely to maintain roughly the same trend during the rest of the year, as it has done in the first half,” Bruzzone said. More ships are expected to be delivered in the second half of 2017 then took place in the first.

He cited the latest data on deliveries of new buildings and pointed out that so far 65 product tankers have been delivered and another 116 are scheduled to do so during the second half of the year.

So far six LR1s and 17 LR2s/Aframaxes have been delivered and another 16 and 38 respectively are due in the remainder of 2017. The LR2s are epoxy coated and can also trade in the dirty market. Therefore the two segments are clubbed together in supply projections.

Bruzzone said this is having a negative impact on rates and eroding the earnings of the owners.

During the first half of this year, owners’ earnings for LR2 tankers averaged $8,000/day on the benchmark Persian Gulf-to-Japan route, down from $19,000/day and $26,500/day in the corresponding period of 2016 and 2015, he said. The LR1s showed similar trends.

For the MRs, the earnings averaged at $9,400/day on the UK-Continent to USAC route, down 16% from the year-earlier period.

The LR2s, LR1s and MRs typically carry up to 90,000 mt, 65,000 mt and 40,000 mt of cargoes respectively.


“All the aspects from the demand side are running at very good levels with strong refining margins and high utilization rates in most of the major refining regions,” Bruzzone said.

He pointed out that the market is being supported by both low crude oil prices and good demand for oil products.

He also said that the outlook was bright in the medium term.

In the next few years the refining industry is expected to add significant capacity worldwide, he added.

“Most of this new capacity will be concentrated in [East] Asia and the Middle East,” he noted.

Capacity utilization in refineries in parts of the US has been reasonably good due to the supply of domestic crude and cheap natural gas, Bruzzone said. However Europe, Japan and the Northeast US have less competitive refineries.

Against this backdrop, the intra-regional trade flows in Asia are expected to increase, Bruzzone said. It will have a positive effect on the demand for MR and LR1 product tankers.

“Closure of some of the refineries in Europe could stimulate trade flows [of clean oil products] on LR2s from the Middle East as well as the US Gulf,” he said. Europe is a major buyer of gasoil and jet fuel from elsewhere.

Nevertheless, this outlook for the clean tankers is for the medium term while in the short-term, the “supply blues” will continue to adversely impact the earnings of owners.
Source: Platts

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