Tanker Market Benefits From Ton-Mile Demand Increase

A structural market shift in the tanker market, could lead to long-lasting effects in ton-mile demand, helping freight rates to sustain a higher level. In its latest market outlook, ship owner Teekay Tankers noted that “crude tanker spot rates increased during the second quarter of 2022 to the highest level in two years. The increase was largely due to ongoing trade route disruption and longer voyage distances resulting from Russia’s invasion of Ukraine, coupled with positive underlying tanker supply and demand fundamentals. The increase in tanker tonne-mile demand due to Russia’s invasion of Ukraine has proven to be durable. Short-haul exports of Russian crude oil to Europe have fallen significantly in recent months, with Russian crude oil increasingly being diverted to destinations East of Suez, particularly to India and China, which is increasing tanker tonne-mile demand. In turn, Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa, and the Middle East, which is also leading to tonne-mile growth. These changes are primarily benefiting the mid-size sectors due to the load and discharge regions involved. Furthermore, these changes appear likely to be long-lasting, with the EU planning to phase out all Russian seaborne crude oil imports by the end of 2022”.

Teekay Tankers added that “looking ahead, an increase in oil demand over the medium-term is expected, with the IEA forecasting 1.7 million barrels per day (mb/d) growth in 2022 and a further 2.1 mb/d growth in 2023, despite high oil prices and concerns over the health of the global economy. Much of this growth is expected to be driven by the non-OECD and in particular by China. While strict lockdowns have capped Chinese oil demand for much of the past year, there have been some reduced restrictions in recent weeks, with any significant or sustained movement in that direction likely to necessitate increased oil imports in China. Global oil supply is also rising, driven by both OPEC and non-OPEC sources, with the IEA forecasting an increase of 1.8 mb/d in global oil production between June and December 2022. However, it remains to be seen how Russian oil supply and exports will be impacted once the EU embargo on Russian crude oil imports comes into effect at the end of 2022. In addition, concerns surrounding the health of the global economy due to rising interest rates and inflation, and the potential for further COVID-19 lockdowns in China, are key areas of uncertainty in the coming months”.

The ship owner added that “the outlook for tanker fleet supply continues to be very positive driven by historic low levels of new tanker orders, a rapidly shrinking orderbook, and an aging tanker fleet. Only 2.1 million deadweight tons (mdwt) of tanker orders were placed in the first half of 2022, which is the lowest total for a 6-month period since Clarksons started reporting data in 1996. Furthermore, most of this ordering has been smaller tankers, with no VLCC or Suezmax orders placed since June 2021 and only a small number of Aframaxes ordered. The Company expects that the level of new tanker orders will remain low in the near-term due to high newbuilding prices, a lack of yard space through the end of 2025 due to record levels of containership and LNG carrier orders, and continued uncertainty over vessel technology. With a diminishing orderbook and an aging fleet, the Company expects minimal global fleet growth in 2023 and for negative fleet growth in 2024 and 2025 as removals are expected to outweigh new deliveries into the world fleet”.

“In summary, recent months have seen average spot rates significantly higher year-on-year and a return of tanker market volatility driven by changing trade patterns and longer voyage distances in the mid-size sectors; the Company anticipates that this volatility will continue in the near-term. Looking further ahead, tanker supply and demand fundamentals currently look very positive, with the best fleet supply fundamentals seen in more than 25 years and steady demand growth as global oil consumption continues to rebound from the COVID-19 pandemic”, Teekay Tankers concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide