Tanker Owners Could be in For More Pain

The tanker market is bound for a revival, but just how soon this will come is anyone’s guess. In its latest weekly report, shipbroker Gibson said that “the announcement that a Covid-19 vaccine developed by Pfizer/BioNTech is over 90% effective in trials sent world equity markets and oil prices soaring earlier this week. However, while this news has changed the sentiment, nothing has changed in terms of the near-term oil supply and demand fundamentals. The vaccine is unlikely to boost world economies until later in 2021 while global oil demand is under renewed threat due to escalating Covid-19 cases, most notably in Europe and the US, where new cases are hitting levels well above those seen during previous peaks. It remains to be seen whether too much hope is being placed in the vaccine. The virus resurgence in many countries prompted the International Energy Agency (IEA) to drastically revise down its demand expectations. Global oil demand in Q3 2020 has been revised down by 0.4 million b/d, Q4 2020 by 1.2 million b/d and Q1 2021 down by 0.7 million b/d. However, the IEA notes that these revisions have been heavily focused on OECD countries, while demand expectations for non-OECD economies have actually been revised up, mainly due to developments in China and India. Chinese oil demand has already climbed above pre-pandemic levels while Indian oil demand is expected to average in Q4 2020 just marginally below levels seen in Q4 2019”.

According to Gibson, “while OECD demand continues to suffer, Libya has surprised the world, rapidly ramping up its crude production following the truce agreed between competing forces. According to Reuters, the country’s output has reached 1.2 million b/d, surging from just 100,000 b/d back in August. With Covid-19 uncertainties mounting and Libyan production recovering, the task of balancing oil markets is becoming increasingly challenging for OPEC+. The original deal agreed back in April envisaged OPEC+ output rising by 2 million b/d in 2021. Oil ministers are due to meet on 30 November and 1 December to discuss oil policy and concerns are mounting that such a large increase in production is no longer an option. The OPEC President stated that “in the context of slow growth in oil demand, the market would struggle to absorb the production increase expected at the start of the year”, indicating a possibility of extending current production cuts during the 1st half of 2021. Some OPEC+ officials went even further, suggesting that if needed, deeper cuts could be on the cards:.

The shipbroker added that “the market consensus for the likely outcome of the upcoming OPEC+ meeting is for an extension of current production quotas. However, predicting OPEC+ future policies could be a futile exercise. History shows that it is often difficult to reach an agreement, due to different economic and social needs of individual OPEC+ members. Interestingly, the IEA calculated that if the OPEC+ 2 million b/d increase were to take place, it would imply almost zero stock change in 1Q 2021. In other words, this shows that there is perhaps some room for a smaller increase in production, which would still lead to a drawdown in inventories. For crude tanker markets, if analysts’ predictions are correct, maintaining current production quotas will only extend the current pain for tanker owners. Will this be the case? Time will tell … For now, all eyes on OPEC+!”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide