Ton-mile demand up 4% in Nov on strong Asia demand
Small room for recovery in crude tankers
South Africa's Engen refinery halt presents upside for products
Global tankers markets are likely to benefit modestly on resurgent Asian oil demand in the coming months, although rising bunker prices could limit the upside for charterers, the International Energy Agency said in its monthly report Dec. 15.
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Register NowThe coming weeks may see more product tankers positioning themselves East of Suez and an overhang of capacity could limit upside for crude tankers, according to market sources.
Ton-miles transported per day on tankers rose 4% from October to November but were still down almost 11% from November last year, the IEA report said.
The increase in ton-mile demand for crude tankers last month was in part due to stronger buying from Asia.
Asian refiners have been picking up large volumes of Middle East, West Africa and European crude, which has helped shrink some of the spot tonnage.
Despite the improvement, demand remains quite depressed across most tanker segments. The increase in tanker activity, combined with rising bunker prices, tracking crude prices higher, only provided slight support for tanker freight rates in November and into early December.
'Counter-cyclical'
The fourth quarter of the year is often associated with stronger earnings in the crude oil tanker market amid bad weather, port restrictions, ice-class vessel requirements, and increased demand for crude ahead of the holiday season.
"Given the cuts in production, this year has been counter-cyclical at best," one ship broker said. "Asian demand has picked up, but European buying is far behind."
Owners are traditionally bullish ahead of the holiday season, which has historically translated into an increase in fixing activity. But this year, sentiment is not as strong.
VLCC freight rates on West Africa-to-East routes have increased by 66% on average from August to December each year in the 2015-2019 period, according to S&P Global Platts data.
However, in 2020, freight on this route was 6.6% down as of Dec. 14, compared with Aug. 1.
"While we see more cargoes in the market, there is just too much tonnage," one shipowner said. "Scrapping price have gone up, but it will take a while before it translates into a relief in the spot market."
The proportion of VLCCs older than 16 years in the tanker fleet has doubled from 10.3% to 21.5% since 2013. This makes it a total of 179 VLCCs that are currently above 16 years old and not able to meet the requirements set by most charterers in the spot market.
The current order book for 2021 is also the lowest in 10 years, reflecting an increased focus on renewables transition and uncertainty with regards to future regulation and technology available to meet new standards.
The tanker fleet's capacity will grow by 2.7% in 2021, down from 6.1% growth in 2019, according to Platts Analytics.
Product tankers supported
Product tankers have drawn support demand for light products in Asia and a crunch in refining capacity in South Africa.
Medium Range tanker freight rates for Persian Gulf-Japan shipments, basis 35,000 mt, rose from Worldscale 96 on Dec. 1 to w115 on Dec. 15.
Rates on the same route for Long Range tankers, basis 55,000 mt, have jumped from w75 to w120 in the same period.
This has been due to the revival of the backhaul market for Asia-Pacific shipments to Southeast Asia, leading to longer lead times for repositioning in the Persian Gulf.
The market has been supported by the return of a key naphtha cracker in Asia Pacific.
South Korea's Lotte Chemical restarted its Daesan cracker on Dec. 7, after having been offline since March 7.
In addition, the temporary shutdown of the Engen refinery in South Africa has opened an arbitrage window from the Persian Gulf to ship to the basin, tightening availability in the process, the IEA said.
Market participants in the clean tanker West of Suez markets are preferring to position vessels in the East of Suez markets due to the greater variety of options available.
Floating storage inquiries for LRs have slowed in December due to a less favorable contango structure in the market, and slowing cargo inquiries in the Americas have dulled traditional trade flows in the Atlantic Basin.
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December 15, 2020 at 10:34PM
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Global tanker markets supported by Asian oil demand: IEA - S&P Global
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