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Tuesday, October 23, 2018

SSY projects upsides and downsides for the tanker markets

Simpson Spence & Young Shipbrokers (SSY) in its latest half yearly report sees healthy projections for world economic growth in 2005 of 4.3%, and an upside for VLCCs. It foresees: 

  • U.S. stock-building later in the year, as U.S. draws on the Special Petroleum Reserve (SPR) for hurricane-related relief;
  • A need for replacement crude cargoes due to oil instillation damage from Hurricane Katrina (+Rita);
  • China likely to replenish stockpiles; A rise in eastbound tanker trades to meet higher oil demand and growth in refining centres such as Singapore;
  • Potential trading opportunities in the Mediterranean with an increase in VLCC cargoes ex-Algeria while the Baku-Tbilisi-Ceyhan (BTC) pipeline may offer cargoes from late in the second half of 2005 (2H05). 

Resumption of Iraqi crude exports from Ceyhan is regarded as one of the ‘risks’ in this segment.

SSY regard the downsides to be:

  • expansion in the VLCC fleet and limited outlook for scrapping (97 VLCCs to be delivered (Clarkson) by 2009 and 11 VLCCs to be phased out (INTERTANKO));
  • U.S. relying more on short-to-medium haul suppliers;
  • limits in global refining capacity, particularly in the U.S. 

Some of the same factors will naturally influence the suezmax sector. SSY sees as upsides for the suezmax sector:

  • greater cargo supply from West and North Africa;
  • an expected increase in Former Soviet Union (FSU) production;
  • tapping of reserves in the Caspian Sea to offer further loading opportunities in the Mediterranean.

Downsides include rapid suezmax fleet growth (65 suezmaxes to be delivered (Clarkson) and 12 to be phased out (INTERTANKO) by 2009), and heavy competition from growing VLCC and aframax fleets. The BTC pipeline could start to re-direct cargoes away from Black Sea ports in winter to avoid possible Bosporus delays, and there could be a third quarter rise in Russian crude export tax. SSY sees that there is a risk that the FSU export could be slower than expected. 

With very heavy fleet growth projected for the aframax sector there is likely to be more downward pressure on aframax rates in the coming months. However, an expected increase in trading volumes from the FSU and more short-haul trading of crude from Venezuela to the U.S. will be two upside positions for this sector in crude trading. Growth in global clean product volumes should lend some upside support to coated tankers in this sector. The U.S. is also expected to take more (short-haul) cargoes from the Caribbean and East Coast Mexico region, particularly in the light of hurricane-related production outages.  

Some of the downsides are expected to be:

  • Ageing oil reserves in UKC gradually reducing North Sea cargo supply;
  • Declining production in Indonesia, negative for Asia-Pacific aframax trades;
  • Venezuelan output below the OPEC target - with a lack of investment threatening supply growth;
  • Massive fleet expansion in 2005 and 2006 (INTERTANKO has 49 aframaxes to be phased out by 2009 and Clarkson lists 161 aframaxes to be delivered- with potential orders to be added for 2008/09 delivery). 

The potential for the U.S. to experience problems in receiving cargoes in the U.S. Gulf region following hurricane damage is a risk for all tanker segments. 

In the panamax sector SSY observes that the greater trading volumes and longer distances for the clean markets are creating new opportunities and this trend is expected to continue into 2006. (INTERTANKO has 45 panamaxes to be phased out by 2009 and Clarkson lists 118 panamaxes to be delivered- with potential orders to be added for 2008/09 delivery). 

Lastly SSY says that the sudden surge in demand for product tankers in the wake of Hurricane Katrina has led to more upside potential for this sector in the near-term. Even so, the rapid fleet growth expected for the handymax sector over the next two years is expected to put some downward pressure on freight rates in some markets. SSY sees several upsides: 

  • Jump in U.S. product imports projected in 2H05 due to intensified refinery constraints and sustained by higher levels of oil demand growth in 2H05;
  • Temporary removal of regulations on sulphur content in fuels for the U.S. to boost U.S. product imports. Some upward pressure on tonne-mile demand due to longer-haul voyages such as increase in jet and diesel exports from Asia to the U.S.;
  • Port infrastructure constraints in China for large product tankers should further boost demand for MRs;
  • More trade in FSU products from the Baltic outlets, to European and U.S. destinations;
  • Refinery expansion in India to boost product exports to the East.

INTERTANKO has recorded 356 tankers of some 15m dwt in the 10-59,999 dwt category (not including chemical tankers) to be phased out by 2009 and Clarkson lists 394 tankers of 16 m dwt to be delivered. There is, of course, the potential for more deliveries in 2008/09. 

SSY also warns that continued strength in oil prices will slow economic expansion, stifling oil demand growth and prompting energy efficiency measures and a switch to alternative energy sources. 

Contact: Erik Ranheim