Tanker Market Braced for Tough Winter Months

The tanker market is looking at more months of losses and negative pressure on freight rates, as a result of worsening fundamentals. In a recent weekly report, shipbroker Allied Shipbroking said that “it has been a catastrophic 3rd quarter for the crude oil tanker market, with freight rates plunging to new lows, mounting the pressure on owners, many of which had been anticipating a market rebound to much better levels. This downward trend has been mainly sourced by the significant drop in demand due to the COVID-19 impacts on the global economy, with some concerns now being expressed on the supply side fundamentals as well, which could ultimately affect the long-term prospects of the sector as well.

According to Mr. Yiannis Vamvakas Research Analyst with Allied, “starting off on the demand side of things, it is now widely recognized that the global economy has been severely hit by the pandemic, with the disruptions on the transportation industry being the biggest concern. As part of the globally imposed lockdown measures, we are looking at a reduction of approximately 8.4 million bpd in crude oil demand for 2020, according to the most recent estimates. Additionally, data from the IEA showed that the year on year drop in Q4 is expected to be around 0.6 million bpd. On the positive side, China seems to have started to recover from its initial slumber, with the latest data showing an increase in crude oil imports during Q3, a pattern that is expected to continue in October”.

“However, the worrying question here is if China’s aggressive buying has been solely based on taking advantage of the low prices. Bolstering this point, the latest OECD figures depict an increase in global oil stocks by 13.5 million barrels for July, while estimates are showing that this rise was followed by a decline in August and another rise in September. Meanwhile, given the increase in oil output as a result of OPEC+ decision to minimize production cuts from 9.7 to 7.7 million bpd, the expectation is for the demand/supply gap to widen further. All in all, things become even more troublesome when adding to this the prospects of a second wave of lockdowns during Q4. In terms of the longer-term prospects, latest estimates are for demand to recover to pre-pandemic levels after the 2Q2021”, Vamvakas said.

Allied’s analyst added that “, Moving on the supply side, the impact fleet growth has on the market may well not be as imminent, but it does go towards shaping the long-term prospects of the market. The global crude oil tanker fleet (vessels above 80,000 dwt) now stands at approximately 2,464 units, having increased by 1.8% since the start of the year, while there are another 37 units that are still scheduled for delivery within 2020. Though this fleet growth has played a negative part in the freight market, there may also be a positive tone to be read when compared against the respective figures of 2019. Last year this fleet growth figure was almost double. Interestingly enough, despite all of this, there has been little interest to retire older age units. It is estimated that a mere 11 vessels have been scrapped in the year so far, while there are 160 vessels aged 20 years or over. All in all, the supply side is not the main concern for time being, as the current fleet growth figures are pointing to a moderate rise over the next couple of years. Taking all this into account, you can see how the strong fall in demand has dominated the market in the year so far, leaving little room for optimism for the final quarter of the year. Yet, given the moderate fleet growth and the expected strong recovery in demand that is expected to occur during 2021, we could anticipate a significant improvement in earnings to take place during the following year”, Vamvakas concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide