Teekay Tankers director of research and commercial performance Christian Waldegrave looks back at 2019 and reviews what the tanker market can expect in 2020
Mr Waldegrave reviewed the performance of tanker freight and earnings performance, noting that Q3 2019 had been particularly weak. Refinery maintenance was extended ahead of IMO 2020 and the market was still absorbing the influx of large tankers delivered in Q1 2019.
Which made the impact of the sanctions on a COSCO tanker company even greater. He commented that the few days of panic in October 2019 when no one knew if it was safe to deal with COSCO led to a remarkable spike in tanker freight rates and earnings.
This event emphasised, in Mr Waldegrave’s opinion, the narrow balance between the supply and demand fundamentals, a situation that has not eased.
On the demand side, 2019 saw changes to trade patterns. He noted the increase in availability of crude oil in the Atlantic Basin, from Norway, Brazil and the US Gulf at a time when OPEC is reducing production.
Where Mr Waldegrave differs from other tanker analysts is that he thinks the impact has not been felt on tonne-miles (volume of cargo carried multiplied by distance), which is the most widely used measure, but in sea miles. He believes tonne-miles may have actually decreased but tankers are undertaking more ballast voyages into the Atlantic, increasing sea miles. An increase in non-cargo carrying voyages is an indicator of increasing inefficiency in the tanker market.
On the supply side, fleet growth has been high, at around 5.5%, but a significant number of VLCCs are tied up in floating storage (25 VLCCs off Singapore and Malaysia), retrofitting, and US sanctions. Therefore, effective fleet growth has been minimal, adding to the rate volatility.
This will continue into Q1 2020. Teekay sees 2020 as a positive year for tanker earnings, with up to 2M b/d increase from non-OPEC crude oil supplies being exported from the Atlantic Basin to the Far East, driving upwards the level of inefficiencies in 2019 into 2020.
He feels that effective fleet supply growth is likely to be low in 2020 with a good demand environment.