Crude oil demand is recovering, but the research division of shipbroker SSY reports average monthly VLCC earnings have slumped to the lowest levels since 2000
Crude oil demand is now back to levels not seen since the last quarter of 2019, according to the July 2021 report from the International Energy Agency (IEA). Demand in Q2 2021 was recorded at 94.73M barrels per day (b/d), which is a 11.81M b/d year-on-year increase.
The IEA reports the drivers of growth were declining infection rates in Brazil, India and Argentina and the lifting of lockdown restrictions in northern Europe. In the Middle East, the seasonal increase in air conditioning demand was an additional factor.
IEA notes the improving economic environment will support a rebound in global oil demand of 5.4M b/d, or 6% above 2020 levels. Despite the rebound, demand across 2021 is expected to remain 3.2% below 2019 levels.
One exemption is China, which IEA feels will register oil demand in 2021 almost 9% above 2019 levels. Demand in the United States is expected to remain around 0.8M b/d below 2019.
Despite the notable lifts in demand, the earnings situation is dire in some tanker sectors. SSY reports VLCC earnings are at the lowest levels since 2000 and Suezmax earnings dropped below zero for the first time since 1998.
VLCCs have been impacted by an increase in supply as the oil company hires re-enter the available-to-work fleet. VLCC earnings fell from a positive US$800 per day in June to negative US$6,000 per day in July on the Middle East routes.
On the period side, SSY reported an LNG dual-fuel newbuild VLCC was fixed to a trader for 3+1+1 years at US$39,000 per day for the first three years, for delivery ex-yard in December 2021.
In West Africa, VLCC earnings fell to minus US$3,700 per day to China. SSY said, “West African oil trade to Asia, along with other Brent-linked crude, had been hindered by a widening Brent/Dubai price spread and a steepening backwardation of the crude futures curve, both of which make Atlantic crudes and longhaul trade less economical for Asian refiners.”
In the Atlantic, outages in Brazilian fields left independent Chinese refiners looking for alternatives, with the focus on the North Sea.
In the Suezmax tanker sector, earnings fell across the board, with West Africa to UK/continent touching the lowest levels seen since 1998.
Aframax owners were able to resist pressures to lower rates in most regions, according to SSY, and in the North Sea the return of the Forties after a three-week shutdown boosted crude oil supply.
In the product tanker sector, rates in the LR size ranges were subdued due to a build up of tonnage after weeks of relatively low activity plus one or two VLCC newbuildings exiting the yards and picking up oil products on the maiden voyage.
In the MR sector, cargoes have been boosted by an increase in product output from US refineries. The 4 July holiday led to a mini-boom in liftings, too. Elsewhere earnings were subdued, with UK continent to US Atlantic coast falling to US$500 per day.
In Asia, the aforementioned LRs poached some cargoes from the MRs and the region is generally affected by Chinese curbs on refined products exports. SSY reported that South Korean exports of oil products are also declining as the Covid-19 lockdown eases, domestic consumption rises and stock available for export decline.
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