Crude Tanker Market Prospects Not Looking Bright, as Far East Demand Has Reached its Limit

In its latest weekly report, shipbroker Allied Shipbroking noted that “the tanker market has been under considerable pressure for many months now, with a first shock being felt during early summer last year as demand struggled to keep its pace, while only a few months later OPEC made a key decision to cut back its production in order to create a positive boost on prices which inevitably stifled demand further. Over the course of 2017 we have seen a strong downward correction in freight rates, especially in the larger crude oil carriers, while sentiment in the sector has been dropping to a near term low, as most fear that the demand hikes generated in the past by the heavy stockpiling going on are now a thing of the past, especially as prices for crude oil have risen somewhat since their low last March”.

According to Mr. George Lazaridis, Head of Market Research & Asset Valuations, “over the past weekend five OPEC members along with Oman and Russia met up in Kuwait in order to push for a further six month extension on the production cuts, with many pointing out that there would be more time needed in order to drain out swollen stockpiles around the globe. With many in the market not feeling the production cuts and with the increased American production levels sending U.S. inventories to an all-time high, traders have started in mass to pull out from their long term positions on a crude oil price increase. It seems as though we have reached a sort of mismatch in market right now, whereby prices continue to hold at fairly “low” levels due to the excess production still being pumped out, while at the same time there seems to be limited underlining demand to drive for increased trade volumes and be able to quickly absorb the excess capacity that is becoming available”.

The shipbroker added that “this is fairly bearish news for the tanker market and in particular crude oil tankers, which seem to be suffering under the strain and seeing a market which is slowly trending back to its old ways. Given that we are at a point in the year were there is an increased amount of refinery maintenance taking place, there is a sense that things should start to “perk up” come April, whereby a considerable amount of refinery capacity should have come back online and help clear out some of the excesses in inventories that have taken place. The problem however will persist to some degree, as demand from the Far East, a market that has mainly been driving new demand for several years now, has reached a plateau from where it is finding it difficult to escape.

Lazaridis said that “things have been slightly more positive on the oil products front, with increased refineries placed around the world having helped to generate more trade and allow for bigger cross-market movements, as traders try to take advantage of the any price arbitrage that shows face. For the moment this bearish sentiment for the seaborne oil trade market has been equally reflected in both the freight market but also in the secondhand market for tanker vessels. Although the number of transactions that have been taking place for several months now have been minimal, with some size segments showing hardly any vessels changing hands, the feel on prices is that we have seen a significant downward correction. In part sellers have withdrawn from the market feeling that the prices on offer are too low to consider, but equally so we have seen buyers put further pressure on the market, with few actively shopping around at the currently quoted price levels. Given all that’s going on right now, it seems as though everyone is waiting for the market to find a new equilibrium. At this point in time this seems to be a lot harder than it sounds with the volatility being noted in the oil market causing “shake ups” and uncertainty for tanker vessels as well”, he concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide