Singapore — Clean and dirty tankers across the globe are likely to be under downward pressure in the April-June quarter due to slower oil trade flow, weak refining margins and lingering supply cuts, but the resale value of these ships will be firm as more among them exchange hands, an analysis by S&P Global Platts showed.
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From Genoa and Copenhagen to Singapore and from Oslo to Mumbai, analysts and market participants told Platts that there could be an occasional rally in the near term freight only to be quickly followed by a correction.
Higher freight and better tanker market for owners is more likely in the second half of the year rather than the second quarter, said Genoa-based Enrico Paglia, a senior analyst with Banchero Costa, a global shipping brokerage and consultancy.
"Tankers are upbeat in general as global demand recovers but with Opec-plus production cuts, they will struggle for the next three months," said Ole-Rikard Hammer, Oslo-based senior analyst with Arctic Securities.
Due to a sheer lack of cargoes, daily spot VLCC earnings on the Persian Gulf-North Asia routes have averaged less than $5,000 so far this year and are currently less than $500 compared with $16,000 at the beginning of the year, brokers said.
Nevertheless, weak demand implies more trades in smaller parcels of one million barrels each that are loaded in Suezmaxes and the silver lining is that their rates are likely to be supported in the current quarter.
Weak freight, firmer ship prices
"Given the weakness in crude prices, the tanker market will remain in doldrums during this quarter," said Paglia.
OPEC+ countries plan to start raising crude output from next month in a phased manner but market participants said it is not enough to significantly revive tanker freight. Many among them have now pinned their hopes on the ongoing talks and possibility of US lifting sanctions on Iran, which have disrupted trade.
China's government data shows that the world's largest crude importer by volume is now buying more crude from smaller suppliers such as Oman and UAE, with shipments increasing 30% and 61% year-on-year during January-February. Several traders and shipping sources said that these grades are potentially blended with Iranian crude and moved on old ships which would have otherwise been scrapped.
Ships that are more than 15-20 years old are fetching a better resale price than their scrap value. The scrap price for a 21-22 year old VLCC is around $18.5 million while 19 year old VLCCs have exchanged hands at $24.5 million in the resale market, a VLCC broker said. Only a couple of shuttle tankers and Aframaxes each and no VLCC were heard demolished during January-February.
Prices of new and 5-15 year old VLCCs are up 7% and 8% so far this year and two under construction VLCCs for delivery next year traded recently at $92 million each, UK-based research consultancy, VesselsValue said citing increased sale and purchase for higher prices.
Tanker owners are looking for longer voyages to keep their ships occupied such as from Europe to India where some North Sea crude barrels have been purchased but the volumes are meager. It is the South American crude grades from Guyana, Colombia, Ecuador and Uruguay that can keep the VLCCs occupied for longer voyages in the coming months.
The second quarter looks set to be tough few months for tankers and even the recent increase in earnings in the clean segment seem to be temporary, said Emily Stausboll, BIMCO's Copenhagen-based shipping analyst.
She points out that US crude oil output is still about 2 million b/d lower than it was in the first quarter of last year. Platts Analytics has projected a 5.8 million b/d growth in oil demand this year but sources point out that it is over the demand destruction of last year and is unlikely to reflect in demand for tankers in the near-term.
China pulls clean tankers
The Long Range, or LR, rates recently hit their highest level so far for this year, pushing up daily earnings on the key Persian Gulf-North Asia routes to over $21,000 and $13,000 from around $1,000-$2,000 earlier this year.
Strong demand to move products from China is delaying the return of ships to the Persian Gulf.
The higher rates now signal that the inventory overhang is starting to clear, said Arctic's Hammer. Charterers now have less flexibility while owners have more pricing power, he said.
For product tankers, the situation is a lot more variable since it depends very much on the COVID-19 vaccine campaigns around the world and it is too early to project an outcome, though pharma suppliers have pledged to speed up deliveries, added Paglia. A successful vaccination program can increase road and air travel and push up the demand for gasoil, gasoline and jetfuel.
However, a large part of Europe is still in lockdown and hurting consumption though there is a modest recovery in the US, he said.
Travel restrictions, lockdowns and a slow vaccine rollout mean that a strong enough recovery in demand to help the tanker shipping market still seems something that cannot be expected in this quarter, said Bimco's Stausboll.
There will be some improvement in this quarter from the truly dismal first but it may still take a few more months until OPEC+ feels confident that it can raise supply without hurting prices, added Hammer.