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TANKERS: Teekay says rising crude production to buoy Q4 dirty tanker markets

Teekay Tankers expects a sustained dirty tanker freight recovery in the fourth quarter and quarters ahead, as economic revival should buoy crude demand, in turn prompting increased crude production and ton-mile demand, company officials said Aug. 5.

The anticipated recovery is hoped to be a U-turn from the second quarter, which marked the lowest dirty tanker freight environment since October 2020, when OPEC+ production cuts and seasonal low oil demand extended by the coronavirus pandemic left dirty tanker supply far above ton-mile demand. Freight for the benchmark 70,000 mt US Gulf Coast-UK Continent route nose-dived to $8.15/mt, or w40, in that month.

Although Teekay Tankers reported a net loss of $129.1 million in the second quarter due to depressed tanker freight rates, President and CEO Kevin Mackay said during the company’s second-quarter results call that he expected these losses will be offset.

“We believe many of the leading indicators for a tanker market recovery continue to improve, including planned increases in OPEC+ production, declining global oil inventories … and positive tanker fleet supply fundamentals as reflected in a low orderbook, heightened scrapping and a very limited amount of new tanker orders,” Mackay said.

The sentiment was echoed by S&P Global Platts Analytics, which expected the fourth quarter to bring a sustained freight market recovery, according to the August Tanker Freight Market Forecast.

Global oil demand is set to grow by 2 million b/d in August and by 4.9 million b/d in 2022, according to Platts Analytics, sustaining greater tanker demand than seen in the past quarter.

Shipowners wrestled bear market in Q2

Freight market recovery around the fourth quarter will come after shipowners endured dismal Q2 market conditions, as freight rates across all key dirty tanker routes scraped bottom amid lackluster charterer demand for ships, according to market sources.

“Crude spot tanker rate weakness persisted in the second quarter of 2021 due to ongoing OPEC+ production cuts resulting from reduced oil demand related to the COVID-19 pandemic, an uneven economic recovery across various geographies, and a concentration of newbuilding deliveries in the first half of 2021,” Mackay said.

According to Platts data, freight for the benchmark 70,000 mt US Gulf Coast-UKC route averaged $11.75/mt, or w68.93, in July, down from a 2021 high of $22.95/mt, or w135, in March.

Looking at freight for eastbound routes, the cost of taking a Suezmax carrying 130,000 mt of crude from the US Gulf Coast to Singapore averaged lump sum $2.24 million in July, down from a high of lump sum $3 million, also in March.

Leaner tanker supply ahead to support bullish fundamentals

Although H2 2021 recorded heavy newbuild tanker deliveries, shipyards currently have their hands full with the container ship orderbook, which combined with high steel prices and low freight rates discourages tanker newbuilding, MacKay said.

The global tanker fleet is set to lean down in the years ahead as high scrap prices encourage scrapping older tonnage.

“The combination of a relatively small tanker orderbook, low levels of new tanker orders, and increased scrapping are expected to keep tanker fleet growth at relatively low levels over the next two to three years,” Mackay said, adding that the tanker order book is currently at approximately 8% of the global fleet size.

A total of 94 ships will be added to the global dirty tanker pool in 2022 across all ship sizes, with the order book only showing 90 additional units in 2023 and 2024 combined, according to Platts Analytics. In 2025, Platts Analytics expects the global fleet to register a net loss of 15 units as scrapping rates overtake the incremental newbuilding count.

Teekay seeks to capitalize on strong freight outlook

In view of the positive outlook, Teekay decided to expand its fleet through the in-chartering of two Aframaxes and one products tanker. This in spite of a negative outlook for the third quarter, as a strong market over the course of the next two to three years will offset any losses during the low near-term market ahead, MacKay said, allowing Teekay to expand earnings potential in the long term.

Teekay owns and operates a fleet of one VLCC, 26 Suezmaxes, 15 Aframaxes and nine Long Range 2 tankers, according to the company fleet list.
Source: Platts

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