Tanker owners will be looking forward to the upcoming winter period, typically the strongest of each year for the wet sector. However, they will also not be wishing for a repeat of last season, when the freight market failed to recover. In its latest weekly report, shipbroker Gibson said that “winter has typically been a period of stronger earnings and higher freight volatility for the tanker sector. However, the winter of 2017/2018 was a disappointment across all sectors, despite it being particularly cold in the Northern hemisphere. As analysts, this has made forecasting the 2018/2019 season all the more challenging. The reasons why last winter failed to deliver are numerous. Key themes include OPEC production cuts, stock drawdowns, which prompted lower demand for seaborne crude trade, and rising tanker supply among other factors. So how is this winter likely to shape up? Will we see a demand driven spike for this season? Will winter disappoint? Will weather delays come to the rescue, regardless of the fundamentals? Will tanker supply blunt any rally before it really gains any momentum? Only time will provide those answers. However, analysing the fundamentals may give some owners reason to be more positive this year”.
According to the shipbroker, “focusing purely on tanker supply, the Aframax/LR2 fleet stood at around 1,014 vessels 12 months ago, vs. 1,013 today. Put simply, the supply side story for this asset class has hardly changed. The picture is similar for VLCCs and not much different for Suezmaxes, with the fleet having grown by 15 vessels over the past 12 months. Generally speaking, the supply side looks stable heading into winter. One reason to be more optimistic, relative to winter 2017/18”.
Gibson added that “the demand side is of course harder to predict and complicated by the impact of Iranian sanctions on trade flows. Yet, with oil stocks near ‘normal’ levels, any incremental increases in demand will have to be met from increases in crude trade flows, most of which are expected to be seaborne. Given that the IEA sees world oil demand surging in Q4 to a record 100.3 million b/d, crude tankers could be set for a seasonal boost”.
The London-based shipbroker said that “however, due to voyage lengths, Q4 demand has already been felt to a certain extent for the VLCCs. Higher demand from Chinese refiners seeking to fully utilize their crude import quotas and concerns about Iranian supplies has supported the market. Whether or not the VLCC market can continue to move up throughout Q4, depends on part on how robust this buying activity remains and how lost Iranian barrels are sourced. The more delivered Iranian crude the Chinese consume, the less the benefit for the ‘international’ tanker fleet. So far OPEC has indicated that production will stay flat which, if true, is likely to force Asian refiners to source more from the Atlantic Basin, supporting tonne mile demand and VLCCs in particular. In fact, evidence has already emerged of stronger Chinese buying of West African grades, whilst Korean, Japanese and Chinese buyers have tapped into the US market. Potentially, this points to more barrels being shifted from Suezmaxes to VLCCs but of course is supportive for the entire crude tanker sector”.
Gibson added that “Aframax owners also have reason to feel more confident about the coming winter season. Whilst Iranian sanctions should be marginally beneficial for all crude tankers (see report dated 14th September), Aframaxes could be the primary beneficiaries. Without additional OPEC/Russian supplies, the focus will be on trading crude supplies already in play. Given that Europe and the Mediterranean is expected to lose 600-700,000 b/d of Iranian crude, local grades will benefit from higher regional demand, which could support short sea Aframax trade. Likewise, Aframaxes will continue to see higher demand in the US Gulf, for both lightering and conventional trading operations as US crude remains one of the key sources of supply in the medium term.
Overall the biggest wildcard for winter concerns the weather. The UK tabloids this week pushed the idea that Europe is braced for its harshest winter since 2010. Whether this reflect the reality remains to be seen. In any case, the story for this coming winter looks a bit more promising than it did 12 months ago”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide