Challenging market – prospects for turnaround in 2021
Market development during the last quarter was just as we previously warned it would be. After a very strong spring, driven by significant stock accumulation in response to record low oil prices, tanker rates fell sharply during summer and autumn, but we see conditions for a turnaround in 2021.
The sharp decline was attributable to lower oil consumption (due to Covid-19), OPEC’s continuing production cuts and stock withdrawals close to the consuming countries. These factors together contributed to considerably reduced demand for tanker transport.
With a relatively high share of vessels employed in the spot market, the market trend is clearly reflected in our own financial statements for the quarter. In addition, the result is also burdened by a loss of income due to scheduled drydockings. We are now in a period of increased maintenance. In addition to the usual classification inspections, we are also installing new ballast water management systems. Two vessels went into drydock during the quarter and another seven will go in between now and summer 2021.
The hangover after the extensive stock accumulation between March and May continues to linger and the market is likely to be challenging for the rest of the year. If, on the other hand, we look ahead to 2021, things look much brighter.
Increased oil consumption and falling inventories...
Since the lows in April, consumption has increased recently – steadily and relatively sharply. Several institutions and analysts, including the U.S. Energy Information Administration (EIA), expect consumption to be back at pre-covid-19 levels as early as spring/summer 2021, i.e. around 100 million barrels per day. At the time of writing, early November 2020, the level is around 95 million barrels per day and the trend remains positive.
... bring increased demand for tankers
The combination of increased oil consumption and continuing production cuts means that the stocks built up during spring are now gradually falling. We expect them to be down to the five-year average as early as this coming winter. Overall, we expect that increased consumption of oil and normalised stock levels in 2021 will result in a clear increase in demand for tanker transports.
Record low net fleet growth
Turning to development of fleet growth, things look really exciting. As we enter November 2020, the order book for the product tanker segment is at a record low 6 percent of the total tanker fleet – the lowest level in over 25 years. Including the expected phasing out of tonnage, growth in 2021 is expected to be only about 2–3 percent. Overall, this means that our view of market development in 2021 is extremely positive. However, this is all said with the greatest respect for the difficulty in making substantiated predictions in the