Tanker markets have moved markedly lower in Q2 2023, a moderation in earnings conditions that was in line with MSI’s expectations and a consistent feature of our outlook, reports Splash247.
Markets remain volatile
Spot market developments for crude and product tankers in April and May have seen a continuation in the overall trend down from the extreme highs witnessed in Q4 22.
For the April-May period, spot earnings are down by about one-third versus Q4 22 across the main tanker segments. This is a sizable drop but by no means catastrophic. Given the height earnings have reached, there is significant cushion. Markets have come down by a lot, but where do they go from here?
As illustrated in the MSI Q2 tanker market report, what these developments do show is that markets remain volatile. Demand-side conditions have been built on a turbulent restructuring of global oil trade, whilst trade volumes are being cut by OPEC+.
Uncertainty has also played a key role in supporting earnings. As we explained in late 2022, we believed that fundamentals in the market were good, but not necessarily great. Put another way, the market had got ahead of where it should be based on supply and demand factors, and a disruption factor has been baked into elevated rates, reflecting the upheaval the oil sector was seeing.
The situation the containership market found itself in 2020 is analogous, in some ways, to the tanker market’s current scenario. Three years ago the global economy and supply chains saw major disruption as a consequence of COVID-19.
This was combined with a rapid change in consumer spending which drove up demand for container shipments. As such, containership markets appreciated incredibly fast and reached unprecedented levels. Given the circumstances, these types of exponential earnings conditions can develop in any shipping market.
In fact, shipping history is littered with such examples. For participants it is easy to assume a new era has begun, and mistake disruption for durable growth.
Once this collective belief in an outlook of unconstrained upside has reached a critical mass, the next stage of a ‘classic’ shipping boom-bust cycle is to over-order new vessels.
This is where comparisons between the containership market and tanker market diverge, but not necessarily disconnect. Massive ordering of containerships accompanied sky-high freight markets, forming a huge bow wave of deliveries. Again, in time-honoured fashion, these deliveries are arriving just as demand conditions fade, leading the market to crash as dramatically as it had risen. The side-effect of such ordering was to fill up shipyards, driving up newbuild prices across all sectors, tankers included.
High shipbuilding prices and yard congestion have in turn been a major factor in deterring tanker orders, meaning that the sector is much better protected from any supply-side risk than at almost any other time in its history.
Reticence to order has been compounded by uncertainty over future fuels and the wider energy transition bearing down on oil use.
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Source: Splash247
