The VLCC market seemed to stabilize in early March, with shipowners feeling more optimistic about a potential rebound. This was initially driven by increased activity as charterers worked to finalize bookings for the second and third decades of the month, reports Breakwave Advisors.
Weak Oil Demand
Despite weak global oil demand forecasts, OPEC+ is expected to gradually increase production as planned. This plan, even with a small initial increase of 140,000 barrels per day, has already caused a notable drop in oil prices.
Here’s a breakdown of the factors influencing this:
- Weak Demand: Demand growth remains sluggish, with limited factors likely to change this. China’s recent stimulus might offer some support, but underlying data suggests a long-term decline in their oil consumption.
- Supply Buffer: Any supply disruptions from stricter Iranian sanctions can be easily covered by OPEC+’s spare capacity, which exceeds 5 million barrels per day.
- Developed Market Plateau: Demand growth in developed countries has stalled.
- Limited Upside: There’s little chance of a significant increase in crude demand this year, aside from any gas-related growth.
Therefore, oil prices are expected to continue their downward trend, reflecting the current market fundamentals.
Going Forward
The dry bulk shipping market is expected to face increased volatility and potential tightness in the coming years due to several factors:
- Geopolitical Uncertainty: Ongoing geopolitical events will continue to disrupt global trade and significantly impact vessel supply.
- Potential Chinese Economic Rebound: Following recent economic challenges, a multi-year cyclical rebound in China’s economic activity is possible, which would boost demand for dry bulk shipping.
- Stable Commodity Demand: Demand for bulk commodities is expected to remain relatively stable.
- Slow Fleet Growth: A relatively low orderbook will result in slower fleet growth, contributing to potential supply tightness.
Therefore, dry bulk shipping is likely to experience higher volatility on top of a long-term trend of tight supply.
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Source: Breakwave Advisors
