Maritime Strategies International's (MSI) oil and tanker markets director Tim Smith sees continued growth in rates across tanker market segments next year but no shortage of macro-level risks to the market.
Speaking at the first day of the annual Tanker Shipping & Trade Conference & Awards in London, Mr Smith outlined his views on demand drivers and the fleet dynamics that consistently play in to predicting tanker market earnings.
"If we look at the one-year time charter rate across a range of tanker benchmark types," he said, "we see a market that is highly correlated across different asset types. Tanker markets move together, they cycle together ... You need to look at this sector holistically."
Mr Smith highlighted the well-publicised uptick in earnings over recent months, saying MSI's research leads them to believe the market has hit its bottom and made the turn.
After a decade of generally weak rates, Mr Smith said volatility, particularly in the spot market sector, remained.
"We’ve been through this 2-3 year period of decline in earnings. In 2018, we’ve reached what we believe is the bottom."
The major driver of improved earnings, of course, has been the increase in oil prices from a bottom in 2016, and Mr Smith forecasted that both short-term oil consumption demand growth and oil prices would remain steady at 1.4-1.5% and US$70 per barrel, respectively.
The multiple macro-level risks he cited included a potential cut in supply from OPEC, which he said was in "constant crisis management" in an attempt to balance internal "shocks" with changing dynamics of global markets.
The primary shift in global markets has come from a "massive increase in US production," he said.
"There’s a lot happening on the production side, and I haven’t yet mentioned Iran – obviously there’s a lot of uncertainty about how OPEC will respond to Iran."
Mr Smith said that, as opposed to historic market gains that came from major shifts in production or supply, the same hadn't proven true over the last decade.
"Prior to 2009, there was a positive correlation," he said. "Since that period, it’s flipped, and you can see that a rise in oil price produced an opposite effect on tanker earnings."
"Part of that, in our view, is the rise, during that time, of US shale production."
Mr Smith said that, although US crude exports have dominated narratives in the sector over the last three years or so, they have not transformed tanker rates, which have declined.
"Going forward, this [trend] is likely to have more effect," he said.
Regarding the US-China trade issues, Mr Smith said the wider Asian market had made up for any shortfall in US crude exports to China.
He said America's crude would grow significantly over the next decade as a long-term market support mechanism.
“In the long-run, we don’t assume the China-US trade spat is going to put the brakes on the longer-term flow of long-haul crude,” he said.
Ultimately, he said we are now at a trough point, and MSI view upside to rates as a key feature of the market moving forward.
However, "the improvement in earnings will be substantial but not exceptional by 2020."