Tanker Market Outlook
The reply from the industry on the present outlook of the tanker- market is positive. Shipowners are currently stating “the market turned for the better last year”. Adding that ongoing trade wars and geopolitical tensions are, if anything only a “positive stimuli” for the tanker- freight demand. “Geopolitical tensions are positive for the tanker- market in general”, as it will only “contribute to an increase in oil- demand from oil- consuming nations”.
Two main market drivers: Today’s market temperature is controlled by two main factors. One and perhaps the most important one is the ongoing trade- tention between US and China. Underlying to this conflict is also a global growing sense of protectionism. The combination of the two is seen upon as positive for freight demand.
The other aspect is the extra deriving demand from IMO2020. The fuel compliancy standard will require more ships to carry oil and or products needed to either produce or deliver more of the product needed. Adding that compliance fuel is an expensive affair, vessels will “slow steam” to further peak demand and diminishing supply.
Trade and geopolitical tensions: First of all, the effect of the trade- disagreements will contribute to an increase in oil- demand. Present protectionism trigger nations to increase in reserves in fear of a growing conflict. Secondly remember that oil is still the most important energy resource for any nation. Current expansion in US oil- infrastructure and fortifying its presence to become the worlds biggest oil exporter by 2025. Part of making this possible is for instance the current expansion to a bottleneck in US domestic pipelining system, known as Key Stone XL. When it opens later on this year it will contribute by an additional 1 million bpd. on top of existing exporting levels.
Saudi- Arabia announced in May that the market should not expect any help increasing global output. They rather said in a statement issued earlier in May, that the market should expect a “raise in June prices for all crude grades that it sells to Asia”. Attempting to discourage Asian buyers from Saudi crude and rather push refiners to draw on own inventories instead. This would support oil prices and be inline with the earlier stated goal by the country to try and “lower reserves in order to maintain higher prices whilst keeping control over own production”. Saudi- Arabia aim for an oil- price above $ 75 a barrel, needed to balance national budgets.
The beauty of IMO2020 fuel compliancy standard: Scrubbers were for many years in the planning of IMO2020 seen as the big revolution as to how to deal with sulfur carbon emissions. However, as the market now stands ready to face its new regime, a full majority of shipowners worldwide has realized that the idea of scrubbers are “unnecessary”, “expensive” and “does nothing to solve the problem of dealing with emissions properly”. With regards to freight demand, the market view on IMO2020 is that it will come in positively. Compliant fuel will be expensive for years to come. Attempting to counter some of the costs, shipowners will “slow steam” instead. “Slow steaming” contributes positively, as a decrease in speed by 15-20 pct. will create an equal 15-20pct. increase to the existing supply/demand ratio measured for the major trade routes.
Another aspect is the level of scrapping within the tanker- fleet. A level which has been record high in 2017/18. Coincidently new- building activity has remained low. Coming as a result from a good few years of poor activity and no opportunities for shipowners to accumulate cash. So knowing that a very low number of new- building contracts have been signed so far. It is fair to expect that the supply side will remain firm for the next 12-18 months and if not even longer.