BIMCO believes low demand will plague the market in the coming months, with too many ships fighting for too few cargoes, in both the crude oil and oil product segments
The tanker market is drifting towards the second quarter of the year and it seems highly unlikely it will experience the record-breaking highs of just 12 months ago. Of course that all depends on external forces, such as the fracas between Saudi Arabia and Russia.
BIMCO chief shipping analyst Peter Sand has been looking at the fundamentals in the latest Oil Tanker shipping overview and outlook. It is a gloomy picture of low demand, stock drawdown and loss-making rates.
“Average earnings for the whole market are slightly better at US$3,416 per day for a VLCC on 12 February. But they are still far from what BIMCO estimates is needed to break even (US$25,000 per day),” he noted in the report.
A few weeks or a month or two of loss-making rates in the spot market can be expected in the trough stage of the tanker market cycle, but BIMCO reports a more alarming feature. “One-year time charter rates are also failing to break even, meaning that some owners fixing ships on these now are accepting daily losses of a few thousand dollars for the next year.”
BIMCO believes the few owners taking this option are expecting the spot market to remain at lower loss-making rates and take the view that a known smaller loss over a year is better than deeper losses on the spot market aggregated over the same period.
BIMCO sees a similar tale in the product tanker market, although the diversity of cargoes provides a range of income levels. “Oil product tanker earnings are also stuck far below break-even levels. So far this year, an LR2 has seen average earnings of just US$4,201 per day. Handysize ships have been the best-performing product tankers though, with average earnings of US$5,964 per day, there is little reason to celebrate,” BIMCO noted.
BIMCO reported a spread of demand for oil products cargoes. “Total EU seaborne imports of oil products ended 2020 down by 19.6%, with fuel oil performing the worst, plummeting 53.8% year-on-year.”
During the same period, BIMCO reported gasoline imports rose 5.1% to 17.4M tonnes, while gas oil imports (which account for nearly half of EU oil products imports) fell 11.4% to 77.7M tonnes.
China has recovered quickly from the downturn experienced during the Covid-19 pandemic and refinery output in December 2020 reached 60M tonnes. Saudi Arabia and Russia provided 31% of China’s crude oil imports, but under Phase 1 of the US–China trade agreement, US exports of crude oil to China rose to 19.8M tonnes.
BIMCO noted that US oil exports have a significant impact on the tanker market from the tonne-mile effect on distance to markets, but US crude oil production is price dependent. “Oil-producing rigs in the US numbered 306 in mid-February – 372 fewer than a year earlier (source: Baker Hughes). This will limit growth in US crude production in coming years, especially if the oil price fails to rise further,” reported BIMCO.
On the supply side, additions to the tanker fleet remain low. BIMCO expects the crude oil fleet to grow by 1.5% in 2021 and the product tanker fleet by 2.5%.
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