Tanker earnings have come under severe pressure in recent months, while further restrictions and lockdowns around the world continue to affect global oil demand, noted Tradeviews analyst Georgia Anastasiou
Asia, by far the largest importer of crude oil, has experienced an almost complete recovery since October, whereas Europe and North America have seen a slower return of volumes.
Comparing 2020 with 2019, Asia had a 5% drop in crude oil, while North America and Europe fell by 26% and 11% respectively. As Europe is now edging back, North America appears to be flatlining.
OPEC is a key factor for the tanker market, with its oil production policy controlling a high portion of the tanker volumes. It is responsible for the production of most of the crude oil traded.
From the beginning of the pandemic, OPEC started oil production cuts. The aim was to prevent a possible oversupply resulting from the demand collapse to stabilise the oil price. Overall, OPEC did manage the new situation, although there were some exceptions during March and particularly April 2020, when more oil was produced.
OPEC’s policy was firm, even throughout periods of up-ticked demand. This containment on the supply side had consequences in the global oil market, where we see the price rising in recent months.
Amid the ongoing pandemic, OPEC’s recent decision was to gradually curb existing output cuts at the beginning of May. The upcoming months are forecast auspiciously, not only due to seasonal demands. Present uncertainty could change the given situation at any moment.
The blockage of the Suez Canal by Ever Given, grounded during March 2021, was indeed an uncertainty. The incident took place during a vulnerable period for tanker shipping and, by extension, for the global economy. For the less informed, it may have been seen as an extremely detrimental incident for the whole shipping industry. On the contrary, the tanker market saw it as a bit of luck in the middle of a storm.
The Suez incident was a relief for freight rates. Due to congestion, many vessels were taken out of the market, decreasing the supply side. The result was an increase in freight rates which would have otherwise been short lived.
It is beneficial to consider the impact of this incident over time. Now that the canal is operating normally, the area is gradually decongested. Beyond that, the level of fleet capacity engaged in floating storage also continues to ease, exerting further supply-side pressure. Consequently, we can claim that this sudden rejuvenation for the tanker market offered only short-term gains.
For a long time, the tanker market seemed like a pendulum trying to balance. OPEC remains stable in production output, causing a rise in oil prices and discomfort in already low tanker earnings. The tanker market remains depressed with returning demand likely to be tentative as output increases. Every returning wave of the virus continues to suppress any chance of an exuberant comeback. Many were hoping Ever Given would be wedged in for longer. Now we are hoping for a sustained upturn as we head into the northern hemisphere summer.
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