With oil prices taking a turn upwards and demand expected to pick in the second half of the year, shipbrokers are examining whether this trend is a sign of a more bullish market ahead, which could benefit tankers as well, reports Gibson shipbrokers ltd.
Robust oil demand
In its latest weekly report, shipbroker Gibson said that oil prices are back above $60/bbl, their highest level since January 2020, before the Wuhan lockdown.
The report added, “In normal times rising prices typically suggest robust oil demand and growing trade requirements, but of course these are not ordinary times. The upward trend in oil prices is a mere reflection that OPEC+ production cuts are being successful in balancing the market and bringing crude inventories down, rather than a surge in demand.”
According to Gibson, in the US, commercial crude inventories were assessed at 469 million bbls last week, their lowest level since late March 2020. The stock position in Europe is also improving, with EU16 crude inventories gradually moving towards the 5-year seasonal average after hitting multiyear highs between May and October 2020.
Although demand remains severely depressed, with refining runs still well below pre-pandemic levels, declining crude stocks show progress.
In the past, when a sharp decline in oil demand and consequently tanker trading demand were seen, the rebound in tanker trade took longer than the recovery in oil consumption due to a build-up of commercial inventories at refinery level.
This means that if the current market dynamics continue and inventories continue to shrink, the rebound in tanker trade this time around is likely to be more in tune with the growth in world oil demand than in the past.
Bullish investor optimism
The shipbroker added that although a surge in oil prices this week has been driven by a big freeze in Texas, fundamentally firmer oil prices highlight bullish investor optimism following successful vaccine trials and deployment.
While the tanker market remains severely depressed, most analysts expect to see a strong global economic recovery this year if coronavirus cases continue to decline and the vaccines roll out accelerates.
The International Monetary Fund (IMF) has revised up its expectations for the growth in the world economy this year by 0.3% to 5.5%, from an estimated 3.5% contraction in 2020. Yet, the strength of the rebound is anticipated to vary significantly across regions. The strongest recovery is expected in non-OECD Asia.
- China’s GDP is expected to grow by 8.1% this year, following a 2.3% expansion in 2020. India’s economy is expected to grow by 11.5% in 2021 versus an 8% decline last year. Advanced economies are likely to see a slower growth in comparison.
- US GDP is anticipated to increase by 5.1% this year compared to a 3.4% contraction in 2020, while the Eurozone economy is anticipated to expand by 4.2% in 2021, following a 7.2% contraction last year.
Soaring global oil consumption
Gibson concluded that the same theme is reflected in forecasts for oil demand.
Currently oil demand remains weak due to ongoing lockdowns and increasing travel restrictions, but a much stronger rebound is projected later in the year. The International Energy Agency (IEA) sees global oil consumption increasing by around 1.3 million b/d in Q2 2021 quarter-on-quarter, then by another 3 million b/d in Q3 and by a further 1.2 million b/d in Q4.
Although even in late-2021 demand will remain below its level in 2019; the anticipated growth over the course of the year is substantial. And whilst an increase in demand will not directly translate into an increase in tanker trade, lower stocks will likely mean that the translation will be more direct than the period following the last oversupplied markets of 2009 and 2015.
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Source: Gibson shipbrokers ltd.