Crude oil tankers of all sizes are barely breaking even on the freight spot market but it could be worse. At least fleet growth is at minimal levels
According to BIMCO estimates, a standard VLCC must earn US$25,000 per day to breakeven, but the last time average VLCC earnings were above this level was at the end of December 2020.
This is the stark story of the current tanker market as reported by BIMCO chief analyst Peter Sand, who after a decade analysing the commercial shipping markets is joining Xeneta on 1 November 2021.
In his Q3 2021 shipping market overview and outlook from BIMCO, there are few highlights as the Covid virus mutations and outbreaks have slowed the recovery in global oil demand and some countries have entered lockdown again. International travel remains complicated.
On the crude oil tanker demand side, exports of crude oil totalled 849.8M tonnes, down 63.2M tonnes from H1 2020 and 121.7M tonnes lower than H1 2019 (source: Tradeviews), explaining the significant drop in freight rates.
On the product tanker side, there has been a sizeable increase in demand, but from a low base: demand for seaborne transportation of oil products has risen by 22.4% in the first six months of this year compared with 2020, but at 508.2M tonnes, volumes are, however, 13.4% lower than in the first half of 2019.
The lack of international travel continues to be felt, with demand for jet fuel falling in 2021 compared with 2020, which was significantly lower than pre-pandemic levels.
Another element that is proving problematic for real volume growth in demand for tanker shipping over the past decade has primarily been driven by the countries that currently have low vaccination rates and which are now facing new outbreaks as a result.
The tanker fleet continues to grow: BIMCO expects the crude oil tanker fleet to grow by 2.7% this year, with a net addition of 12.8M dwt, and the oil product tanker fleet to grow by 3M dwt or 1.7%.
This would be the lowest fleet growth recorded for product tankers since the early 2000s.
On the product tanker side, the lower growth in the fleet is due to an increase in scrapping.
In conclusion, BIMCO noted that demand is likely to remain subdued even though the northern winter is traditionally the peak tanker season.
Next year, 2022 may see a return to firmer rates, but profitable rates might be later in the year.
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