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Monday, December 18, 2017

Strong increase in MR demand

 

The MR fleet has been increasing strongly and will continue to increase by some 11% over the next few years. The product tanker market has remained fairly buoyant despite the strong fleet increase, which would indicate a significant increase in demand. We do not have any specific data to support such a demand increase, but this market has been characterised by a great deal of arbitrage trading that is very difficult to measure and impossible to forecast.

 

There is a shortage of gasoline due to U.S. refinery problems and the average gasoline price in the U.S. is now more than USD 3 a gallon. However, the high price does not seem to have deterred drivers from getting behind the wheel.

 

From a relatively low level in mid-March, U.S. gasoline imports have risen strongly and steadily, so that in the week ending 25 May the U.S. imported the highest quantity of gasoline ever.  

The U.S. has increased gasoline imports every year, although the average for 2007 is still below the 2006 level. Total U.S. product imports have increased by some 65% since 2000, rising from an average of some 2 million barrels daily (mbd) to about 3.4 mbd on average so far in 2007. According to BP figures, the U.S. will annually add some 0.2 mbd of refinery capacity until 2011. The big question in the U.S. is how much of the increased consumption will be covered by ethanol/bio-diesel. If it manages to meet its targets for biofuels, the need for gasoline imports to the U.S. could disappear in a few years. 

 

The figures for Europe come out later than those for the U.S. But it is noteworthy that European product imports increased until 2007 when they started declining. However, as the figures are only for two months and Europe usually revises its figures several times, this decline may not be a good indication of the longer-term trend. CONCAWE (the oil companies' European association for environment, health, and safety in refining and distribution) assumes a maximum ethanol availability by 2015 of 11.6 million tones (m ts) gasoline equivalent per annum and 9.3m ts of diesel equivalent. According to CONCAWE, Europe's consumption of road fuels in 2005 amounted to some 117m ts of gasoline and 172m ts of diesel.

 

Development of new refinery capacity will naturally be important for the future development of the product tanker market.

  

We have used the figures from BP and projected oil consumption increasing by 1.8% each year, in line with the predictions of the International Energy Agency (IEA). This shows a tightening refinery capacity, which could mean very high utilisation resulting in a greater need for maintenance and more arbitrage trading - to the benefit of product tankers.

 

With the current strong increase in oil consumption, China could also start importing gasoline, as refinery expansions, according to firm projects, will only increase by on average 0.4 mbd until 2011, whereas annual consumption could increase by 0.6 mbd. In addition to the firm refinery projects, there are a large number of unconfirmed projects for primarily 2010-2013, most of them in Latin America, the Middle East, and Africa.

  

The MR fleet is projected to grow more strongly than any other fleet segment, with the strongest increase this year, but also strong growth in 2008 and 2009. The tankers on order range from 30,000 dwt to 54,000 dwt with only a couple between 16,000 dwt and 30,000 dwt. The tankers on the way out, on the other hand, are mainly 25-30,000 dwt. We have therefore included in the MR sector only tankers down to 25,000 dwt.  

 

Our analysis shows that assuming a balanced market end 2006, and despite a strong increase of 6% in demand, a surplus will build up that will last until 2011, even without further deliveries. The black bars show the number deliveries needed to balance the market assuming a 6% increase in demand.

 

Contact: Erik Ranheim