Mediocre product tanker market – record low for crude oil tankers
The upswing in the product tanker market in the Atlantic that we wrote about in December held during the second half of December and the first part of January, with levels of around $15,000/day. The Middle East remained strong during December, but dipped during the Christmas and New Year break, while the Far East plodded on around a mediocre $10-12,000/day. Towards the end of January the Atlantic market also fell off and the rates are now hovering just below $10,000/day and about $7,500 on a worldwide basis.
We have not had the usual winter delays and other effects of the weather in Europe, but the chill in the US and Canada produced some good results for ice-classed vessels on the Saint Lawrence River. If the colder weather in Northen Europe holds, the rates will probably start moving up again.
Big crude oil tankers have experienced their worst January since 2012, with rates for Suezmax tankers from between $5,000 to $10,000/day on a round trip basis (better if they can be combined of course). There are many explanations for this, but the main one is Opec’s cuts of its production. On top of this China’s imports in December were somewhat lower than usual, and also prioritized Chinese vessels.
Looking at the year as a whole, 2017 was just as bad as we expected. Extremely high stock levels were one of the main reasons, built up during 2015 and first half of 2016. The use of stocked oil in consumer countries has resulted in a drop in demand for transportation by tankers. Stocks were also high in the beginning of 2017, but as a result of Opec’s declining production have been considerably reduced. They are expected to have come down to normal levels in the middle of 2018.
Looking ahead we still expect an improvement in the second half of 2018. We would in this context like to take the opportunity to repeat what we published in the recent year-end report for 2017:
- The world economy is doing well and the global consumption of oil is expected to increase from between 1.4 to 1.7 million barrels a day in 2018. We believe that Opec and other oil producing countries will return to normal production rates again in H2 2018 - approx. 1.5 million barrels a day - which will contribute to a significant increase in demand for transportation.
- Lower growth in the fleet. On the supply side the order book is relatively low and net growth of MR tankers is expected to only reach 2 per cent in 2018 compared with around 4.5 per cent in 2017. In addition to this there will be additional environmental considerations, such as the Ballast Water Convention and the new Sulphur Directive 2020, that will increase incentives for phasing out and scrapping older tankers.
Taking all this into account we expect an increase in the demand for tanker transport and a progressively more balanced and stronger market during the second half of 2018.
As I said, we are now looking ahead!
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Kim Ullman, CEO