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Tanker Market Expected to Take Time to Recover

The tanker market is bound to need more time to recover after a year which was far from normal. In its latest weekly report, shipbroker Gibson said that “the best science fiction script writers from Hollywood could not have come up with the twists and turns that we have experienced during 2020. In a year that was supposed to be dominated by IMO2020, the transition to VLSFO went relatively smoothly (nothing much else did). Price spreads widened and those who had installed scrubbers looked pleased with their investments. Little did they know that the spread was about to collapse for reasons no one could have predicted”.

Source: Gibson Shipbrokers

According to Gibson, “early in the year, positive news came in the form of a US-China trade deal that would see millions of tonnes of oil traded eastwards, yetthis was in part neutralised by sanctions being lifted on various VLCCs, whilst renewed unrest in Libya saw oil exports collapse. Freight rates that had ended 2019 on a high soon came under downwards pressure. However,the world soon started to change. By late January China had locked down Wuhan and other cities in Hubei province. For the crude market, spot VLCC earningson TD3C fell from $100,000/day in January to just $15,000/day by early-February as demand from China fell away. By March the viral outbreak was spreading rapidly across the world and governments in almost every single country were forced to close much of their economies. Oil demand collapsed rapidly overnight, declining by 21.8m b/d YOY in April, the single largest contraction ever witnessed”.

The shipbroker added that “the tanker marker was initially saved from the pandemic by a short and sharp oil price war, which led to the emergence of a super contangoand helped to propel tanker rates to record highs with TD3C reaching WS 220. In contrast, oil prices sunk, from $51/bbl in January to $19/bbl in April, while WTI temporarily collapsed into negative territory, reaching -$37/bbl just before the contract’s expiry. By May OPEC+ instigated a historic 9.7m b/d cut. However, despite the group’s best efforts, floating storage was inevitable. Non-Iranian crude storage peaked on large crude carriers in July when 56 VLCCs and 36 Suezmaxes were employed in longer-term floating storage duties (four weeks or more). This number was even higher when shorter-term storage and discharging delays were factored in”

“Many countries started to come out of lock down over the summer period, which saw oil prices rise, albeit modestly. OPEC+ cuts were eased to 7.7m b/d. However, as production recalibrated to lower levels and floating storage passed its peak, the earnings capacity of the tanker sector diminished. Throughout the year Venezuelan exports came under continued pressure as the US gradually withdrew support for export licenses. A small ray of hope was the re-opening of Libyan crude exports which was beneficial for tanker employment, but rates were unaffected as millions of barrels still remained missing from the market. By the end of October, non-Iranian crude floating storage was down to 45 VLCCs and 12 Suezmaxes, while preliminary figures show just 29 VLCCs and 6 Suezmaxes at beginning of December”, said Gibson.

“Surprisingly, the orderbook for new tankers has not been significantly impacted by the massive disruption that has occurred due to covid-19. The orderbook has risen by 13% YOY since last December (see table below). The unexpectedly high number of tanker orders may in part be attributed to the falling yard prices during the year, from $92m in January down to $85m in November”, said the shipbroker.

“2021 will bring further change. A change of leadership in the White House will see a shift in US Foreign Policy. Environmental factors will grow increasingly impactful. The damage inflicted by the pandemic will be felt for many years to come, with largescale changes in global refining capacity and crude production impacting on trade flows. Bunker price spreads should find their natural level, which may yet vindicate those who invested in scrubbers. At the same time, an increasing number of dual fuel tankers will enter the fleet. Covid-19 will undoubtedly remain a factor, but it is hoped that with the rollout of vaccines, 2021 will be a better year for the world, even if the tanker market takes time to recover its strength”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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