The ongoing coronavirus outbreak, high fleet growth in 2019 and warm weather are part of a cocktail of forces pushing tanker freight rates down from their Q4 2019 highs
The latest tanker shipping forecast from shipowner association BIMCO shows several factors working to dampen the tanker freight rates that peaked in a heady spike in late 2019.
Normal seasonal cycles are one factor behind dropping tanker day rates – the market typically sees strong demand in Q4 that slowly fades through the first quarter of each year – but myriad other factors are weighing on rates and "clouding the outlook for 2020" despite lower fleet growth projections, BIMCO’s analysis said. BIMCO projected 1.8% crude oil tanker fleet growth in 2020 and 2% for product tankers, down from 6.2% growth and 4.6% growth in 2019, respectively.
Positive drivers in the market have faded, the report said, citing lifted sanctions on Chinese-owned tankers, higher fuel costs due to the impact of IMO’s sulphur regulations on marine fuel, warm weather and the outbreak of the COVID-19 coronavirus in China.
Based on uncertainty around what the full impact of the coronavirus outbreak could be, the BIMCO report cited International Energy Agency’s (IEA) recently adjusted forecast that expects global oil demand to fall by 435,000 barrels per day (b/d) in Q1, "the first contraction in over 10 years".
"At the time of writing (mid-February), the full effect of the coronavirus outbreak is still impossible to predict," the report said. "But because of China’s size and importance to the tanker market, any disruptions to its oil trading caused by the coronavirus will have a major impact on the tanker market."
BIMCO said travel restrictions in China aimed at controlling the spread of the virus had already lowered utilisation rates from Chinese refineries and crude throughput demand from state-owned Sinopec had been reduced by 600,000 b/d.
Despite halving tariffs on US imports in the initial phase of a US-China trade agreement aimed at reopening trade after a prolonged trade war, the BIMCO report said trade disruption due to the coronavirus concerns make it "highly doubtful" China could meet the terms of the deal.
"The coronavirus spread could also derail the otherwise positive effects of ’Phase One’ of the trade agreement between the US and China. With only 12 months to increase its energy imports by US$22.9Bn compared with 2019 levels, every month will count."
Average daily earnings for very large crude carriers (VLCC) had dropped to US$23,797 per day on 7 February, from US$94,286 per day at the start of January, BIMCO said. In early February, Suezmax earnings stood at US$33,756 per day and Aframax earnings at US$22,036 per day.