Newbuilding Tonnage Supply and Lower Oil Volumes To Keep Rates Under Pressure
Tanker owners could be faced with increased downward pressure exerted on the freight rate market in the coming months. In its latest weekly report, shipbroker Gibson said that “refinery maintenance season is well underway. Scheduled turnarounds in North America may have peaked, but globally planned outages will peak this month, whilst works in Asia stay elevated through to May. High turnaround activity has already impacted both the crude and product tanker markets this quarter, however, evolution in global crude trade flows appears to be supporting tonne mile demand during what is typically a weak period. In the products sector, export volumes are now falling in line with seasonal trends but should be set for a strong rebound in the second half of 2019 as post maintenance export volumes increase”.
According to Gibson, “with OPEC strictly adhering to its output agreement, refiners are increasingly having to look to the Atlantic Basin to fulfil their feedstock requirements. Given that a voyage from the US Gulf to North Asia takes 6-8 weeks, with charterers typically fixing 1 month forward of loading, Asian refineries sourcing post turnaround supplies have to act now, partly underpinning the recent strength of the VLCC market. Forward buying activity may also be stoked by paranoia about crude supplies in the second half of the year. Even those with term commitments appear to be showing some concern over whether or not they will receive their full contractual volumes this summer when domestic demand in the Middle East rises. Furthermore, new refinery start-ups (of which several Middle East producers have signed supply contracts with), coupled with higher global run rates, will further serve to tighten the crude oil market in the second half of the year. Assuming OPEC maintains its production discipline, refiners will be forced to increasingly turn to the Atlantic Basin for incremental supplies”.
The shipbroker added that “for product tankers, January earnings held up better than expected, primarily on the back of strong Middle East and Chinese export volumes. However, barring any non-fundamental factors, the market is expected to remain under pressure from lower volumes until Q3, when product supplies will increase post turnarounds, particularly East of Suez. In the West, turnarounds conclude earlier, but will remain elevated through until April, which potentially signals an improvement in fundamentals sooner than the East market. Much will depend on demand from West Africa and Latin America. Mexico (see report dated 1st March 2019) should remain a supportive demand outlet this year. Venezuela of course remains uncertain, whilst other countries such as Brazil should see modest import demand growth. What is uncertain, however, is how much product West Africa, particularly Nigeria will absorb, now that elections have passed”.
“Against these demand side factors, fleet supply will remain a bearish factor for much of the year. The crude market is yet to fully feel the force of 2019’s newbuild programme, with a number of newbuilds still involved in the gasoil trade. However, as the year progresses, new tanker deliveries will present more of a challenge to both the crude and products markets. Indeed, whilst the demand side fundamentals look strong moving forwards, fleet growth is expected to place a ceiling on the market’s potential for much of the year”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide