- Fledgling demand will have a major impact on total volumes needed, while global oil and petrochemical production is expected to increase slightly.
- The current roller-coaster situation in oil, gas and commodities in general, is putting pressure on the maritime sectors overall.
- The analysis shows that in absence of large changes in current policies, it is still too early to expect a rapid decline in oil demand.
- At the same time, demand for oil products (petrochemicals, fuels), more than 6 million bpd is coming online until 2025.
- While demand for products is expected to increase only by around 2 million bpd.
- The latter will put increased pressure on OECD refineries, as margins will be low, but MENA refineries are going to be hitting higher returns.
Tanker sector rollercoaster looking at scrapping to bring long-term profits, writes Cyril Widdershoven for FXEMPIRE.
IEA STEPS scenario
In the IEA STEPS scenario, global oil demand grows by around 5 million bpd in 2021, reaching pre-pandemic levels by 2023.
Consumption is also expected to increase steadily, even at a more subdued rate, 0.7 million bpd per year until 2030, reaching 0.1 million bpd by 2040.
As reported by the IEA, in STEPS, US tight oil is expected to return to 2019 levels by 2022.
Tanker demand has a bright future
Looking at the above picture, tanker demand is looking at a brighter future. Continuing global demand is clear, production will follow but distances between consumers and producers will increase.
Most commodity transport at present and in future will be maritime based.
If the markets are hitting contango again, as some expect looking at COVID 2.0 and global economic crisis scenarios, short-term demand for tankers will increase even faster due to need for additional storage, not only crude but also products.
Tanker rates are very low
Some analysts are worried about the current situation, as tanker rates are very low.
The latter partly is caused by the situation that the immense floating storage volumes that accumulated between 2019 and now, are only slowly being unloaded.
After a short price hike in April-June when Saudi Arabia pushed additional volumes in the market, contrary to the fledgling demand, rates hit around $250,000 per day.
Hopes from analysts
Analysts have hoped the last months that global demand would return to pre-COVID levels soon, emptying tankers fast and putting them back on the spot-market. The latter would lead to a more normal market situation.
However, COVID 2.0, increasing lockdowns in major markets, such as OECD and India, are pushing back unloading volumes, keeping tankers full and prices very low.
For the coming months this situation seems to be continuing, or even up to H2 2021, barring a major geopolitical confrontation or a solution to Corona.
What about the present scenario?
The current situation is very painful for tankers, as intelligence company Kpler stated to the press. Clarksons Platou Securities stated in the media that cratering crude-tanker rates are now well below both breakeven levels.
The latter reported that rates for very large crude carriers (VLCCs, tankers that carry 2 million barrels of crude oil) averaged $17,000 per day, in stark contrast to levels of $100,000 per day at this time 2019. Looking beyond last year’s anomaly, current VLCC rates are less than a third of their 2015-19 average.
Chinese floating storage
- The most important development here is that Chinese floating storage accounted for around half of global floating storage in the beginning of September.
- It’s now down to around a third. More worrying at present is also the percentage of unladen (empty) crude/condensate tankers versus the total fleet, based on deadweight tonnage, regardless of size category.
What does Kpler say about the situation?
According to Kpler the situation is very ugly. There are too many empty ships chasing too few cargoes. And it’s getting worse. As reported by Kpler the laden/unladen mix was roughly evenly split at the beginning of the year, until the Saudi production decision. That caused a surge in crude-tanker rates in March and April. That rate spike, and ships being chartered for floating storage, brought the unladen percentage down to 40%-42% in May.
Since that time, the unloaded percentage has however increased to 52.5%, a year high. The latter also gives a very bearish signal to oil markets, as demand is not positive until at least end 2021. Still, there are also positive signs in the market. Not only could OPEC+ decide again to push volumes in the market, tipping the latter again to full contango.
Tanker market not static
At the same time, the tanker market is not static at all. Analysts should be looking at the underlying structure of the crude tanker market. The current orderbook for tankers is almost empty, enticing owners to consider scrapping older ones.
In a normal market around 5% of tankers is being scrapped every year. Scrapping is expected to come back with a bang, as COVID had temporarily restricted scrapping operations also.
The latter, combined with low rates as present will be a major force to revamp the sector. A possible additional jump in scrapping is to be expected when the older VLCCs, currently all used for floating storage, are being unloaded.
Hisham Alnughaimish, VP Operations Bahri Oil
The latter was also supported by Hisham Alnughaimish, VP Operations Bahri Oil, Saudi Arabia’s main shipping company and a panel at the Saudi Maritime Congress webinar. The panel members said that the lack of tanker newbuilding orders, coupled with reduced freight and asset values over the past few months, will lead to a more positive market in 2021.
Current orderbooks for new builds are lagging behind as financing by traditional shipping banks have disappeared or was reduced.
Alnughaimish reiterated that the current negative market fundamentals will result in lack of newbuilds and a bullish market for tankers in the coming years.
The Bahri VP reiterated that around 25% of the world’s approximately 800 VLCCs are over 15 years old, and they can only command low rates.
Alnughaimish expects that “if tanker rates remain depressed, all the aging ships will need to exit the market. Only then will we see a slow recovery but much better tanker demand-supply market by 2023”.
How about investors and financial institutions?
For investors and financial institutions oil tanker operations are a very cyclical sector. At present the market has reached its lowest level, without any doubt rates and orders will increase again. A post-COVID situation will not only entail a re-emergence of economic growth, higher demand for oil and gas products and commodities.
At the same time, a re-emerging global economic growth also will show a different energy trade flow, as some hydrocarbon producing regions will become less prominent.
Re-emerging OPEC+ oil production
- A re-emerging OPEC+ oil production will not only change tanker routes and storage demand but also effect tanker rates and margins.
- New IMO, Green Deal and other environmental requirements also will block a vast part of existing tanker fleet, pushing for refurbishments or new builds.
- For investors it is now very necessary to re-assess their portfolio and future investment partners based on changing trade volumes, routes and regulations.
Investing in an old-cheap fleet could become not profitable but a liability. New builds and oil tanker companies or projects linked to producers (NOCs) could also become a major focal point for new investments.
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