The end of the oil storage play, together with uncertainty over crude oil demand in the months to come, are expected to exert pressure on the tanker market in the weeks to come.
In its latest weekly report, shipbroker Allied Shipbroking said that “during the peak of the COVID-19 pandemic there was but one freight market to be hindered by what was going on. Market participants witnessed skyrocketing volumes being traded during the March-April period, driven by the monumental drop in oil prices which reached levels not seen since 2003.
With many traders looking to get their hands on as much oil as possible and utilising all storage options, freight rates reached record highs”.
Source: Allied Shipbrokers
“However, since then this rally has come to an abrupt end, with the BDTI slumping to levels even below the 500bp mark.
Undoubtedly, in all this freight market splendour, low oil prices were the key driver. Key importance to this has been the role of the supply glut created during this time.
The collapse in discussions between OPEC and Russia over production cuts led to an excessive flow of oil reaching markets, pushing both Brent and WTI to record lows.
These excesses did eventually scale back, with the OPEC+ group eventually coming to an agreement for a massive output cut program of approximately 9.7 mbpd for the period of May-June”, Allied said.
Source: Allied Shipbrokers
According to Allied’s Research Analyst, Mr. Yiannis Vamvakas, “this is set to be scaled back to 7.7 mbpd for the remainder of 2020 (although production cuts for August and September could end up being deeper as some countries may need to compensate for previous lack of compliance), while come January 2021 this is set to drop to 5.8 mbpd.
All these gradual increased flows at any point could be met by the potential of an increase in Iranian exports, which although currently at around 150,000 bpd, could easily reach 2 million bpd at any point.
US oil production has also increased by 1.2 mbpd to around 10.9 mbpd as of late, a fair level though still much lower than the 13 mbpd seen back in March.
At the same time and on the side of demand, the pandemic has had considerable effects as well, having caused a severe drop in consumption from all OECD as well as a large number of major developing economies”.
Vamvakas said that “a second wave of lockdowns will definitely dampen any anticipated recovery, but the impact is not expected to be as severe.
The recent news regarding a potential vaccine have helped calm down fears, with oil demand forecasts having been revised up by between 5 and 7 mbpd for next year.
Meanwhile, demand data for 2020 is also improving, with OPEC estimates for the year standing at 90.72 million bpd, an increased of 0.13 million bpd compared to its previous forecast. In China, official data illustrated a significant rise in volumes coming out of domestic refineries. In particular, June data showed a volume output of 14.08 million bpd, 1 million more than in May.
The respective figure back in February, at the peak of pandemic spread, was only 10 million bpd. However, this boost in China may only be temporary, with local storage capacity looking to have already peaked during previous months”, Allied’s analyst noted.
Source: Allied Shipbrokers
“Meanwhile, the EIA has recently stated that demand for petroleum and liquid fuels is not expected to surpass 2019 figures before August 2021, despite the recent uptick in demand. Things are pointing to a possible mild recovery in consumption during the coming months, which though may be disrupted by a second wave of lockdowns, it is unlikely to be hindered to the same extent.
At the same time, the supply of oil coming to the market is expected to rise by a fair amount over the coming months, likely keeping a solid cap for now on these low oil prices.
Taking everything into account, there can be a case to argue for much better freight market conditions to emerge during the latter half of the year, though surely not to the extent seen back in the March-April period”, Vamvakas concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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