Tanker market sees boost from higher ton-mile demand says shipbroker
The tanker freight market has come alive over the past few weeks, together with the rise of oil prices. This can be attributed to a host of factors, however, according to Allied Shipbroking, this is down to a surge in demand, mainly from the Far East markets, which in turn is also good for ton-mile demand. Allied said in its latest weekly report, that “crude oil prices have been seeing some support emerge this past week as supply disruptions in Iraq and a drop in US drilling has helped bolster oil investors to jump back in as they start to see the market showing a more attractive face. This surge in interest comes just weeks after both Saudi Arabia and Russia further reinforced their commitment to uphold and even possibly extend supply cuts to the end of 2018. However, despite these aspects, there still seems to be some resistance being noted in the market. The price of crude has managed to pivot around the US$ 58 per barrel mark, a level higher than what we were seeing 12 months back and one of the highest levels noted this year, yet still short of that psychological barrier of US$ 60 per barrel level”.
According to Mr. George Lazaridis, Allied’s Head of Market Research & Asset Valuations, said that “in part many will attribute this resistance on the upper barrier brought on by US shale drillers, with an estimate that at crude oil prices above this level the market would start to flood once more in an excessive supply glut which would inevitably bring prices back down fairly quick. In this effort for holding off the excess supply, OPEC’s secretary general expressed his confidence in the effort being made and that there is no doubt that the market is rebalancing itself at an impressive rate”.
Lazaridis added that “it looks to be more of a case of boosted demand however, rather than restrained supply. China’s insatiable appetite for this energy commodity continues strong and it looks to still have a considerable way to go before we can even consider that its peaked demand level has been reached. At the same time several other developing countries, such as India, show an equally promising boom in imports. In the past both China and India would have been seen as more troubling for the crude oil tanker market, given their positioning close to the Middle East Gulf, the world’s largest producing region of crude oil. Yet with the shale revolution in the US having been thrown into the mix and having transformed the price arbitrage between crude oil prices in the West and in the East, an opportunity has arisen that bears more tonne-mile potential than would have been considered”, Allied’s analyst noted.
According to him, “this has been no doubt the prime driver behind the recent support noted in freight market, with the Far East having shown a strong influx of cargo demand and having helped keep things busier than usual. Yet this recent improvement in rates has only been marginal and has taken place during a seasonal high for this sector. The winter months are typically characterized by stronger demand for imports, as consumption of heating oil goes up in the western hemisphere. Albeit all these positive developments that look to have taken place during the past couple of months, the disparity between sellers and buyers in the secondhand market continues to hold. It is no surprise that during the course of 2017 activity in the crude oil tanker space has been minimal while prices have remained under pressure for an even longer time. The reality of the matter is that buyers have only recently shifted their focus to this sector and at the same time look upon it as an opportunity for bargain hunting. Given this, their price perception is considerably lower than what is currently being offered, while at the same time ship owners are refraining from becoming keen sellers at this time given that earnings are still able to hold at relatively fine levels. Which side will break first and which direction prices will eventually take is an interesting conundrum being faced right now, while a whole lot is still riding on the developments of the crude oil trade”, he concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide