Product Tanker Market to Rebalance in Response to Contracting Oil Demand

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The latest International Energy Agency (IEA) report predicts a decline in oil demand by the end of this decade, primarily driven by the adoption of electric vehicles and more efficient engines. This decline is set to significantly impact the product tanker market, particularly as demand for gasoline and diesel—comprising over half of the refined products—diminishes. The market is expected to rebalance over the long term, leading to fleet adjustments and reduced new orders, reports Drewry.

Key Insights

  1. Decline in Demand for Gasoline and Diesel:
    • Gasoline demand is projected to decrease by 0.2 million barrels per day starting in 2026.
    • Diesel demand is expected to decelerate from 2027 onwards.
    • This decline in key refined products, which together make up over 80% of the total clean petroleum product (CPP) demand, will significantly affect the market.
  2. Increase in Naphtha and Jet Fuel Demand:
    • Despite the decline in gasoline and diesel, naphtha demand is expected to rise, driven by the petrochemical industry.
    • Jet fuel demand will also increase due to heightened aviation activity in non-OECD countries.
    • However, these gains will not offset the overall reduction in gasoline and diesel demand.
  3. Regional Shifts in Oil Demand:
    • Asia-Pacific is forecasted to lead in demand growth.
    • Europe and North America will experience a gradual decline in oil demand.
    • Refinery throughput is set to increase by 2.7 million barrels per day (mbpd) in the East of the Suez region, while the Atlantic basin will see a reduction of 0.6 mbpd.
  4. Impact on Product Tanker Dynamics:
    • Rising refinery throughput in major consumer regions could boost intra-Asia trade and support medium-range (MR) tankers.
    • Declining throughput in the Atlantic basin may limit long-haul trade opportunities.
    • The overall CPP market is expected to decline from 2028, increasing market volatility.
  5. Future of the Product Tanker Market:
    • The product tanker trade has been robust since 2023 due to EU sanctions on Russian products and extended voyages caused by the Red Sea crisis.
    • In the initial years, fleet adjustments will be necessary, with new orders limited to replacement tonnage meeting stringent environmental regulations.
    • As overall trade declines, in the long run, new orders might fall below replacement levels.
    • Shipping rates will remain volatile, with oversupply taking longer to rebalance during downturns compared to periods of incremental demand.

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Source: Drewry