Following on from last month’s release of the IEA Net Zero (NZE) 2050 report, the publishing of its World Energy Outlook (WEO) 2023 provides a glimpse into when oil demand may peak based on the Stated Policy Scenario (STEPS) framework, which is based on the current trajectory of global decarbonisation policy and is less pessimistic in its demand outlook.
However, it is important to note that it is just one of three alternative forecast scenarios and contrasts with the conclusions of the NZE scenario which assumes net zero by 2050 and the Announced Pledges Scenario (APS) which explores the full and timely implementation of national energy and climate goals. However, we have already started to see some countries back away from their climate commitment, which adds further ambiguity to long term forecasts. In the STEPS, the IEA has cut its demand forecast for fossil fuels across the board, relative to last year’s report, driven by their losing of market share to clean energy technologies and renewables. This has important implications for the tanker market and the longer-term outlook for the sector in terms of demand.
The report forecasts that oil demand will peak at 104.5 mbd in 2030 before easing to 102.1 mbd in 2050. This is five years earlier than previously thought and overall, 2050 demand is projected to be 5 mbd less. This is driven by an anticipated faster uptake of electric vehicles, reducing transport fuel demand. It is worth noting that, although lower demand levels are unwelcome news for the tanker market, in relative terms, such levels are not necessarily too bearish. Likewise, despite falling demand for gasoline and diesel, this will be partially offset by rising oil demand from the aviation and petrochemical sectors into the mid-2030s, with only limited reductions in absolute demand expected until 2050, when the forecast period ends.
Meanwhile, on the supply side, global production is expected to be 101.5 mbd in 2030 and then decline to 97.4 mbd in 2050. During this period, emerging producers and unconventional sources will increase their share of the market. In terms of refining, and in line with the expectation of lower road fuel demand, there is expected to be limited capacity increases after 2030. Again, as on the demand side, when these reductions are considered in relative terms, such forecasts are not necessarily as alarming as some may have expected.
All of this raises an important question about the future of the tanker market. While it is inevitable that the energy transition will reduce demand for oil shipping, it will not be a cliff edge scenario. In reality, the transition away from fossil fuels will be a long, drawn-out process of gradual reductions in demand and inevitably, new opportunities will likely arise along the way. At the same time, if we see a prolonged period of low tanker ordering, the effects of this could help to naturally offset lower future demand levels and help to keep the tonnage balanced going forward.
Furthermore, oil demand peak will vary by the region, with Europe and North America further along in their energy transitions. Whilst Asian consumers, particularly China are accelerating their transition efforts and uptake of EVs, their extensive petrochemical industry should continue to see strong base demand well into the next decade. Therefore, while current forecasts are starting to put a date on peak oil demand, there is still reason to be optimistic about the tanker market for the foreseeable future.
Crude Oil
Middle East
A promising end to the week for VLCC Owners as rates have started to rebound after a busy week. Owners’ resistance and refusal to do last has paid dividends. Charterers with early laycans are struggling to pull in suitable offers as Owners are looking towards the Atlantic. Today we would expect 270 AG/China to fetch in the region of ws 60 and 280 AG/USG to go for at least ws 33 level.
The AG has really struggled to make progress on the Suezmaxes this week despite that Basrah cargoes heading West do seem to have fared okay. Rates for TD23 are likely to be North of 140,000mt x ws 80 next week, especially with a roaring market in the West. Cargoes heading East remain under pressure from the VLCCs but as we see VLCCs starting to move up, next week Owners will be looking to push beyond 130,000mt x ws 120 today for AG/East. After a busy few weeks, Charterers have taken a breather as enquiry slowly subsided this week. However, with surrounding markets remaining firm and tension rising in the Middle East, rates have held their ground. Owners remain bullish and with the list up to 10th November looking relatively thin in the AG, it will not take much to get rates moving once more. The week ends with AG/East at 80,000mt x ws 185 level.
West Africa
We are seeing similarities here on VLCC, where Owners’ sentiment is strengthening, as rates are starting to move upwards on the back of a buoyant Suezmax market. We are seeing an influx of East ballasters, as fundamentals here look promising. Charterers are already moving to cover last decade as they fear freight could keep rising. In today’s market, we are expecting a WAF/China to fix at ws 63.5 level.
Suezmax markets in West Africa remain on fire, with little respite for any Charterers looking to fix from the region. Tonnage remains tight and any Owner with what resembles a safe itinerary will have ideas of TD20 moving up to 130,000mt x ws 155.
Mediterranean
The market in the Med remains outstandingly firm and the Black Sea continues to move upwards, with rates looking to go beyond 135,000mt x ws 150 for TD6. Owners will be hoping for the same again next week, especially with the prospects of rougher weather on the way. Cargoes heading East today may find someone looking to lock in their return for the year around the $5.6m mark for Libya/Ningbo, though this may be easier said than done with bullish sentiment at the moment.
The Med, after its recent surge, has begun to steady with the market reaching an equilibrium at the back end of the week. CPC cargos were maintained at ws 220 levels, which is also what Suezmaxes will achieve and so a natural level was found. Those cargoes working out of Ceyhan have had to reach further forward, causing further upside to be potentially limited. We close with Cross Med at around ws 215 and the market hangs in the balance for now.
US Gulf/Latin America
VLCC rates are starting to rebound after the recent downturn. This has been a reaction by a very strong market in Aframax and Suezmax sectors across the Atlantic, plus a plethora of Brazil exports stems. Owners now have good options with a spike in WAF as well, so we expect a USG / China run will fix in the region of just $10m on today’s market, while a Brazil/China is paying around ws 62 level.
The USG Aframax market has gone from strength to strength this week, as a concoction of enquiry in the form of lightering, local and an increase in across TA cargoes has left those, looking to cover, seeing a limited list. Cross TA cemented itself for the majority of the week at ws 200 but at the close has now pushed up to well above the ws 265 levels, with little signs of stopping. The armada of ballasters continues to make their way across the pond but they seem to be welcomed with open arms. The sky is the limit currently, with Suezmaxes seemingly the only threat thus far.
North Sea
The North Aframax market has grown in confidence, as the week has progressed. With surrounding markets firming, the North held its ground initially before flourishing in line with its neighbours. Replacement business and the USG still offering staggering returns were the catalysts. We complete trading in the mid/high ws 220 for an X-North Sea run. With the sentiment still firming, we can expect to see a bit more of a push as we head into next week.
Clean Products
East
The LR2s are trading at the 75,000mt x ws 170 mark for AG/East and $4.4 million for AG/UKC we would imagine some sniping of the right units. The LR1s are trading at 55,000mt x ws 170 and $3.55 million for a AG/UKC run. Both lists are looking tight here but a zero point spread between TC1 and TC5 makes little sense. Something has to give, and a pre Bahri rush for coverage is a dangerous beast to contend with – especially given lack of quality on each list.
The MRs have once again struggled to get going this week where the majority of cargo enquiry has been for localised short haul X-AG runs. While Owners have been happy to take what’s on offer as a gap filler, levels for TC17 have come under pressure with ws 230 not yet feeling like we are at the bottom. The potential for a pre Bahri week rush next week has been discussed however softening in markets further East could well see ballasters throw their hat in for AG runs and with these additional units in play we could see a further 10-20 point drop to start the week.
Mediterranean
All in all it’s been a busy week for the Handies here in the Mediterranean with good enquiry levels throughout. We began the week with X-Med rates trading steady at the 30,000mt x ws 190 mark but with an influx of Naphtha cargoes on Monday and Tuesday helping to tighten the list level soon pushed up 5 points by midweek. Fast-forward to Friday and we see X-Med bouncing around the 30,000mt x ws 195-200 levels with rates date dependent. Heading into the weekend the list remains tight for end-early dates so expect Charterers to hold off till Monday if they can.
Finally to the Med MR market where rates have been able to push up off the back of improved enquiry and a positive TC2 market. 37,000mt x ws 145 Med/TA was achieved on Monday but since then enquiry has picked up with 37,000mt x ws 160 being achieved by midweek. WAF action throughout the week has been slow with levels tracking Med/TA at the usual +10 premium. At the time of writing 37,000mt x ws 172.5 has been achieved for a Med/UKC run so expect Owners ideas for TA runs to be heightened into the weekend.
UK Continent
A positive week on the MRS with rates gradually increasing throughout from 37,000mt x ws 140 to 37,000mt x ws 160 level for TC2. In our opinion there is still potential of landing higher next if Owners play their cards right, as premium players in position giving a false sense of security and bulking the list. Cargoes have been resupplied and we have 5 outstanding cargoes in the 01-05 window still left to cover. There is potential to improve as lacking ballast units and tonnage in general for the early-mid Nov window.
It has been a steady week for Handies plying their trade in the North as X-UKC levels have traded at 30,000mt x ws 175(X-UKC) for the majority. A few MRs have competed on handy stems throughout in order to avoid locking in at TC2 at 37,000mt x ws 140 therefore shorthaul was preferred as they believe that the TC2/WAF sector will improve next week. More of the same is expected here in the Handysize market.
Dirty Products
Handy
In the Continent, Charterers’ options were limited on Monday, with sentiment remaining in Owners’ favour and questions being raised as to whether we could see a significant bounce in levels beyond last done. However, the region failed to see the injection of cargoes that Owners would have liked and has only enabled them to achieve a ws 2.5 point gain since last week. From now on, it’s expected that we’ll continue to see these incremental gains, if enquiry continues at its current pace and replenishment is minimal.
Owners in the Med went into this week feeling confident they could keep pushing the market up, whilst firm, natural tonnage was in short supply. As steady enquiry started to flow at the onset of the week, top of the list tonnage was soon snapped up at ws 305 and it was looking more likely that Owners would be able to push for ws 310 going into mid-week. However, tonnage replenishment and a drop in activity levels created a steadier feel to the region and consequently saw ws 305 repeated again on more than one occasion. At the week’s close, rumours of ws 310 have started to circulate, bolstering Owners’ confidence heading into week 44.
MR
It’s been another week of disappointment for full stem enquiry in the North. MR Owners with well-positioned units were certainly poised to jump at 45kt stems this week but yet again have succumbed to taking part cargoes in a plea to limit their idle days. Rates up North are desperately in need of a fresh test going forward in order to eliminate the guesswork around market levels for 45kt enquiry.
In the Med, it’s been slightly more of a mixed bag, as more than one Owner managed to secure 45kt cargoes at the beginning of the week. Yet, as the week progressed, coverage was taken on part cargoes to keep the props turning and maintain a tight list. Although the full stem enquiry in the Med this week has mainly been concluded behind closed doors, there has been a slight discrepancy between Owners regarding where true market levels lie. What we can agree is that whilst firm, well-approved tonnage is lacking in the region, Owners remain firmly in the driving seat heading into next week.
Panamax
After last week’s test finally arrived, the European Panamax market this week has left Owners frustrated after having minimal opportunities to find employment on this side of the pond. Looking across the Atlantic, the States market currently offers good returns and steady employment for local tonnage, making it challenging to lure vessels away from the region. Consequently, when firm positions are available in the European market, ship owners are forced to either ballast west for stateside employment or take local/part cargo runs to fill the gaps, leaving long haul enquiries needing more tonnage.
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Source : Gibson
