The outlook for the global crude oil tanker market remains difficult for the near term, according to a new analysis from maritime research consultancy Drewry, reports Maritime Executive.
In a year-end analysis, they point to uncertain demand for oil combined with overcapacity and the industry’s failure to take steps to address the glut of vessels
A decline in floating oil storage
In its analysis, Drewry points to the continued lack of demolitions and efforts by shipowners to reduce the overcapacity among crude oil tankers. Despite the sharp decline in vessel earnings in the second half of 2020, Drewry points out that only one VLCC has been scrapped since the beginning of 2019. At the same time, 104 new VLCCs have entered the market.
Floating oil storage has also declined in recent months returning more vessels to the trade.
The crude tanker fleet active as floating storage spiked at 11 percent in the spring now falling back to about seven percent according to Drewry.
While 74 VLCCs are still acting as floating storage, the decline has returned both Suezmaxes and Aframaxes to the market and more are likely to follow as the oil stockpiles start to be drawn down.
Demand unlikely to recover till 2022
Despite the recent increase in oil prices past $50 a barrel, Drewry predicts that “global oil demand is unlikely to return to 2019 levels before 2022.”
They believe the market strengthened in part on the news of potential COVID-19 vaccines, but with uncertainty about the efficacy and speed of the global availability of the vaccines they believe the oil market may have gotten ahead of itself in anticipation of a prospective recovery in oil demand.
Even as demand recovers, they point out that the existence of vast stockpiles accumulated in 2020.
“After a massive build of 325mb in 1H20, OECD oil inventory declined modestly by 22.7 mb in 3Q20 to 3192mb, about 9% higher than in the same period last year,” says Drewry.
They point out as these supplies are drawn down, it will have a negative impact on the shipping market and trade.
Vessel demolitions
Based on current market conditions, Drewry suggests that a recovery maybe be tied to the vessel demolitions.
They highlight that 102 new VLCCs are due to enter the market in 2021 and 2022.
“However, as the fleet is young, a rapid rebalancing is not possible without a decline in the average scrapping age below 20 years,” says Drewry.
Analyzing the current global fleet, they point out that about 81 VLCCs are due for the fourth/fifth special survey by the end of 2022.
Currently, they believe 23 of those vessels are storing oil, with only nine vessels are fitted with scrubbers and ballast water systems.
“While VLCCs locked in floating storage are likely to be scrapped before the next survey, tankers fitted with scrubbers/BWTS should continue to operate beyond the next special survey.
If we assume that all the vessels without scrubbers/BWTS will be scrapped before the fourth/fifth special survey, the VLCC fleet will still expand by some 30 vessels to 863 vessels by 2022,” concluded Drewry.
Under the current market conditions, they predict a long and painful recovery for the crude oil tanker segment.
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Source: Maritime Executive
