The latest outlook from independent shipping and vessel valuation consultant MSI holds little cheer for tanker owners
Tanker demand has fallen off a cliff and with imperfect timing, Saudi Arabia’s surprise voluntary cut in oil production by 1M b/d will slam into a tanker market where earnings on the benchmark routes are already below opex.
These are some of the elements that have caused MSI to revise its tanker market outlook.
MSI’s latest Horizon newsletter reports that in the VLCC spot market, timecharter equivalent earnings on the Middle East-China route in mid-February have fallen to around US$2,100 per day. This and other factors have caused MSI to revise downward its forecast for Q1 2021 spot rates by over 60% to US$5,700 per day. MSI’s forecast for timecharter rates are virtually unchanged at US$26,400 per day.
In the Suezmax sector, MSI expects that some of the Suezmax tankers returning from storage duties will not return to the main fleet and will be sold for recycling. This will help prevent the already low spot market of US$2,200 per day average forecast for Q1 2021 sinking any further. MSI estimates that as at the end of January 2021, some 2.6M dwt of Suezmax tanker capacity was in floating storage.
MSI has also revised downwards its estimates for rates and earnings in the Aframax tanker sector. It estimates that timecharter equivalent earnings on the North Sea to Europe route have dipped into negative territory of minus US$7,800 per day.
On the product tanker side, LR2 timecharter equivalent earnings fell 56% month-on-month in January 2021 to US$5,300 per day. So far in February 2021, LR2 earnings have fallen to zero.
In the MR2 sector, MSI reports that timecharter equivalent earnings in January 2021 fell to 16% month-on-month in January 2021 to US$7,200 per day. So far in February, MR2 earnings have fallen further to US$3,800 per day.
MSI notes that product supply is facing a surge when two mega-refineries in the Middle East come online. The Al Zour complex in Kuwait and the Jazan facility in Saudi Arabia will add 1M b/d of products to the supply side when fully operational. The two units are at the commissioning stage, and given the weak global demand for products due to Covid-19, are likely to delay full capacity for some time.
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