International Seaways sees Americas crude growth driving long-haul tanker demand

Growing crude production across the Americas is creating a structural source of tanker demand as additional barrels from the Western Hemisphere increasingly move toward consumption centers in the East, International Seaways said Aug. 10.

Rising production from the US, Guyana, Brazil and Argentina is part of a broader shift in global crude trade that will support shipping demand beyond the extraordinary market disruption caused by ongoing conflicts, management said during the company's Q2 earnings call.

"When you really drop back and take all the horrible war effects, all of the war in the world out of the equation, you see the fundamental West increasing, the East demanding that crude," CEO Lois Zabrocky said.

The resulting movement of barrels between regions supports tanker demand through longer voyages, while current market disruptions have also encouraged charterers to substitute between different vessel classes, management said.

"One of the things that we're seeing very significantly now in the tanker market between the VLCCs, the Suezmaxes, particularly the Aframaxes, is a lot of dislocation and substitution by charters between sizes so that you're really seeing a lot of overlap between the sectors," Zabrocky said.

Company expands Americas shipping position

International Seaways is also increasing its exposure to refined-product trades in the Americas, ordering four additional LR1 tankers for delivery in the second half of 2028 as it renews its fleet and builds on an established regional customer base.

The orders follow six LR1 newbuilds contracted three years ago, giving the company a larger group of modern sister vessels operating in a segment management described as a reliable niche business.

"We have a very strong customer base in the Americas," Zabrocky said. "This combination has proven over time to be a very reliable niche trade, so we intend to continue," she said.

Global disruptions amplify tanker fundamentals

The underlying growth in Americas trade is being amplified by disruptions around major Middle Eastern shipping routes, which management described as among the most consequential events for seaborne energy transportation in decades.

"These events have undoubtedly increased uncertainty, [but] they have also created significant inefficiencies in global trade as cargoes seek alternative routes, increasing ton-mile demand and supporting tanker markets," Zabrocky said.

Management said the disruptions have increased voyage distances and complicated global crude and product movements. If conditions ease, rebuilding inventories could provide another source of tanker demand.

"If these disruptions begin to ease over the near term, we believe inventory replenishment could become an additional source of tanker demand," Zabrocky said.

The company nevertheless cautioned that prolonged disruption could eventually have the opposite effect by weakening economic activity and petroleum consumption.

"If these disruptions persist for an extended period, the risk shifts to consumption," Zabrocky said.

"Sustained disruption of this magnitude could ultimately weigh on the global economy and oil demand," she said.

US product exports support tanker demand

Management also pointed to strong US refined-product exports as another source of shipping demand, with US refineries running at high levels while supplies from other producing regions face disruptions.

"The United States refinery system is going full out, and those exports are concentrated on MRs," Zabrocky said.

US diesel exports were running around 1.5 million b/d and gasoline exports at almost 1 million b/d, according to figures cited by management during the call.

At the same time, attacks on Russian refining capacity have removed some product supply, while Middle Eastern exports have faced difficulties.

"The Ukrainians have been hitting a lot of the Russian refineries, so you see some of that. Those barrels taken off the market. The Middle East products are having a challenging time consistently getting exported," Zabrocky said.

China has also returned as a more significant source of refined-product exports.

"You are seeing China start exporting again, which we had not seen in a long time," Zabrocky said.

Despite some normalization in product-tanker markets, management said underlying demand remained strong.

"They continue to be in short supply and demand is continuing strong," Zabrocky said.

Aging fleet constrains vessel supply

The tanker supply outlook remains supportive despite increased newbuild ordering, management said, arguing that the industry's aging fleet means a substantial portion of incoming capacity will effectively be needed to replace older vessels.

About 30% of the global tanker fleet is already more than 20 years old, and that proportion could exceed 50% by 2030, according to management.

"Each year of scheduled deliveries is accompanied by a comparable, and in some years, even larger group of vessels reaching 20 years of age," Zabrocky said.

The company, therefore, does not see the existing orderbook as necessarily creating an excessive supply of vessels.

"We believe the industry still has capacity for additional ordering to support the aging fleet," Zabrocky said.