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Oil demand recovery, supply outlook favorable for clean tankers: Ardmore

Highlights

Bearish summer expected, aligned with seasonality

Oil demand to resurge in winter, supporting freight

Aging fleet, scrapping uptick improves supply outlook

The product tanker market fell into low earnings at the start of the third quarter, following typical seasonality, but forecasts of rebounding oil demand by the end of 2021 and longer-term tanker supply dynamics have given clean tanker owners a bullish outlook, Ardmore Shipping CFO Paul Tivnan, said July 27 in the company's Q2 earnings call.

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Time charter equivalent earnings for Medium-Range tankers stood around $10,000 per day so far in Q3, Tivnan said, down from the average $11,650/d captured in Q2.

Historically, clean tanker markets see a period of bearish sentiment in the summer months, in part because of the US driving season in the Americas markets, according to market participants. Conversely, clean tanker freight typically reaches the highest levels in Q4, aligned with high refinery utilization rates and increased exports from major refining regions as producers sell off excess stock.

An expected increase in petroleum product demand by the end of 2021 could underpin typical seasonality for product tanker markets, Ardmore projected, with oil demand expected to reach pre-pandemic levels by the winter of 2021, according to the International Energy Agency's July Oil Market Report. Oil consumption is expected to rise about 4 million b/d by the end of 2021, driven by road fuel demand, Tivnan said. Border closures, meanwhile, continue to constrain aviation fuels.

Platts Analytics data projected an uptick in freight on the 38,000 mt US Gulf Coast-UK/Continent November and December 2021, with forward curves estimated at Worldscale 75.79 for November and w85.28 for December. The spot 38,000 mt USGC-UK/Continent route was last assessed at w77.5 July 27, having come off 16% from the start of the month, when freight was assessed at w92.5 July 1.

Scrapping, aging fleet support bullish supply outlook

Looking further forward, Tivnan said the outlook for product tanker supply looked to be decreasing in the coming years because of increased scrapping levels and the advanced age of many clean tankers in the global fleet.

Product tanker scrapping in the first half of 2021 doubled the rates seen in 2019 and 2020, Ardmore Shipping said, citing Clarksons Shipping Intelligence Network's July 2021 estimates. So far in 2021, 40 tankers were scrapped, which Ardmore equated to a run rate of about 70 ships for the full year, even with pandemic-related restrictions hindering scrapping facilities in Asia.

For newbuilds, new product tanker deliveries on the order book from Q1 2021 to Q1 2024 stood at 208 units, or 6.7% of the current global fleet, according to Clarksons data. This percentage is offset by a large number of product tankers reaching the 15- and 20-year age groups; Tivnan said 240 product tankers are currently more than 20 years old, which would equate to an average of 50 to 60 vessels to be scrapped annually through 2026. Scrapping rates could continue to grow thereafter, with 930 product tankers already more than 15 years of age, according to Ardmore Shipping's Q2 presentation.