Tuesday, 21 April 2020

Tankers Could Face Rocky Period Ahead

It’s fair to say that the oil market is experiencing one of its most challenging periods, with a ripple effect expected in the tanker market as well. In its latest weekly report, shipbroker Gibson said that 

“a week after the biggest deal in oil history was agreed, the oil price has eased off and the contango spread in crude futures is wider than before the deal was signed. The markets seem underwhelmed. However, this should not detract from the scale of the agreement. No matter what the baseline, removing 9.7 million b/d for May and June, followed up a deep 7.7 million b/d cut for the balance of the year and restrictions of 5.8 million b/d until April 2022, is unprecedented. To add to this, further cuts, be it State imposed or through economic declines from the US, Canada, Brazil and potentially Norway, could further reduce supply by 3-4 million b/d. Further action by key oil consumers to increase crude purchases for their strategic petroleum reserves (SPRs) will also have an effect. Nevertheless, given the current demand destruction, the fact remains that these worldwide cuts are simply not enough”.
Source: Gibson

“According to the IEA, global oil demand is estimated to have fallen by 29 million b/d in April, and 26 million b/d for May, reducing demand to levels not seen in 25 years. A huge stock build is inevitable over the coming quarter and despite more storage capacity being made available via SPRs, floating storage will be inevitable. This floating storage demand is likely to be the main pillar of support for the tanker market once OPEC+ cuts are felt by the market. At the time of writing, calculations show that the contango in ICE Brent supports 3 months storage at $138,000/day and 6 months at $89,000/day, before any profit margin for the trader is accounted for. VLCC spot rates currently stand at $165,000/day”, Gibson said.

The shipbroker added that “the big question is for how long storage demand can support the tanker market? Latest projections from the IEA pointto a significant stock build in Q2 2020, tuning into a stock draw as soon as Q3. However, a high degree of uncertainty exists in this forecast. 

Firstly, it assumes that demand begins to recover after steep reductions in April and May, and secondly, it assumes that OPEC+ stays the course on its deal. However, if this scenario is assumed to be the case, then the tanker markets face a rocky second half to 2020 as floating storage will start to decline and seaborne trade volumes will remain severely depressed. At this point in time, it seems hard to envisage such a quick recovery in demand, but irrespective of timing, demand will eventually recover, and oil stocks will be drawn down”, Gibson noted.

According to Gibson, “beyond 2020, the tanker markets look to face a rocky period. World oil demand is not expected to recovery back to 2019 levels until well into 2021. Yes, the OPEC+ deal could be revised, or even collapse, but ultimately oil supply and demand will have to move towards a balance, be it from OPEC+ members or from other countries such as the US and Canada. It seems that right now,tanker owners should continue to make hay whilst the sun shines, wary of storm clouds gathering just over the horizon”, the shipbroker concluded

Nikos Roussanoglou, Hellenic Shipping News Worldwide
Luke Smout Felixstowe

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