- Tanker market expected to be weaker until the end of 2020.
- Crude tanker spot rates remained firm during the second quarter of 2020, particularly during the early part of the quarter.
- Global oil production is expected to increase as both OPEC and non-OPEC countries are expected to increase oil supply to the market.
- Ship owners expect a relatively weaker crude tanker market during the second half of 2020, especially compared to the strong first half of 2020
Tanker owners are bracing for a tougher second half as the market is bound to shift, writes Nikos Roussanoglou for Hellenic Shipping News.
Stable tanker spot rates
In its latest market outlook, ship owner Teekay Tankers said that “Crude tanker spot rates remained firm during the second quarter of 2020, particularly during the early part of the quarter. Crude trade volumes increased during April 2020 due to the short-lived price war between Saudi Arabia and Russia, leading to increased tanker demand.”
- Floating storage also gave support to crude tanker spot rates during the quarter, peaking in early May 2020 when almost 500 tankers, or over 60 million deadweight tonnes (mdwt), were storing approximately 400 million barrels of oil.
- This floating storage was driven by a significant mismatch between elevated levels of global oil production and depressed oil demand due to the impact of COVID-19, resulting in a large surplus of both crude oil and refined products.
Onshore storage filled rapidly which then forced oil into floating storage, particularly as the crude oil futures curve moved into a steep contango.
Decline in global oil production
Teekay noted that “The OPEC+ group implemented record oil production cuts of 9.7 million barrels per day (mb/d) from the beginning of May 2020, with Saudi Arabia, UAE and Kuwait pledging a further 1.2 mb/d of cuts during June 2020. Compliance with these cuts has been relatively high and has led to a significant reduction in crude trade volumes from May 2020 onwards.”
- Oil production has also declined in non-OPEC countries due to the impact of weak oil prices, with total global oil production falling by 11.3 mb/d between April and May 2020 and by a further 2.4 mb/d during June 2020.
- According to the International Energy Agency, global oil production of 86.9 mb/d during June 2020 was the lowest in approximately nine years, which has weighed on tanker demand from May 2020 onwards.
“Taken together, a reduction in trade volumes, coupled with ships returning from floating storage, has put pressure on crude tanker spot rates during the latter part of the second quarter of 2020, and this weakness has continued into the early part of the third quarter of 2020,” Teekay added.
According to the ship owner, “Looking ahead to the second half of the year, global oil production is expected to increase as both OPEC and non-OPEC countries are expected to increase oil supply to the market.”
- The OPEC+ group is set to return 2 mb/d of production from August 2020 onwards.
- Non-OPEC oil production could also start to rebound, with global oil prices having stabilized above $40 per barrel in recent weeks.
In addition, global refinery throughput is expected to increase by approximately 9 mb/d between the second quarter and fourth quarter of 2020, which would create additional crude oil demand.
Uncertainties over oil demand recovery
Teekay added that “the long-term outlook remains very difficult to forecast due to significant uncertainties over the strength and pace of a potential oil demand recovery, with much depending on how various countries and regions manage to contain the spread of COVID-19 over the coming months.”
Finally, new tanker ordering remains extremely low, and will likely remain so in the near future. Overall, they expect low levels of tanker fleet growth for at least the next two years.
“In summary, the tanker market looks set for a more challenging period in the coming months following a very strong first half of the year. Although the demand outlook is highly uncertain, we remain encouraged by the tanker fleet supply fundamentals which appear much more favourable compared to prior market cycles,” the ship owner concluded.
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Source: Hellenic Shipping News
