MSI’s managing director Dr Adam Kent looks at the impact on the tanker market from the Covid-19 coronavirus, from its first reported outbreak to scenarios on its long-term impact
The tanker market is where we have seen the greatest initial impact from Covid-19 coronavirus on markets. Tanker markets are already seeing a substantial downside, with sharp declines in spot markets after a strong start to the year. The IEA have stated that global oil demand is likely to contract in Q1 2020 as a result of the Covid-19 coronavirus, the first time this has happened since 2009. China’s oil demand is experiencing severe shock and could drop by more than 3M b/d (circa 25%) in February.
China accounts for about 14% of global oil demand, but 22% of global crude oil trade as estimated by MSI. Moreover, it was the key growth driver in 2019. Net growth in global crude imports was effectively flat last year, while China saw an 8.9% increase. This year will be markedly different with Chinese refiners cutting throughput substantially in Q1 2020, although our base case view is that conditions will normalise in Q2 2020. Until then, vessel earnings will continue to decline across Q1 2020.
The impact of Corvid-19 coronavirus will not just be in China itself. With oil prices having fallen by around 15% between mid-January and mid-February, OPEC may decide to take even more substantial action in a meeting scheduled for early March. Against a backdrop of plummeting Libyan exports, as well, crude cargo volumes will be under pressure across H1 2020 as a result.
In terms of markets, it should be noted MSI already expected a weakening of tanker time charter earnings over the course of 2020 as the earlier impetus from IMO 2020 and sanctions faded. What we have seen so far from Corvid-19 coronavirus is an escalation of these trends, with further downside risk if there is further escalation.
The coronavirus is yet another external force that is dictating the direction of the tanker market. Hear how this will impact US crude oil and products exports at the inaugural Tanker Shipping & Trade Conference, Americas on 15-16 April 2020 in Houston, Texas, USA