Third quarter financial reports show earnings among tanker owners were generally better than expected, and highlight positive developments in the crude oil and product tanker sectors
Third quarter financial reports show earnings among tanker owners were generally better than expected, and highlight positive developments in the crude oil and product tanker sectors
Publicly-listed crude oil and product tanker owners recently released their Q3 and nine months of 2018 to-date financial results, which included some interesting commentary on the state of their respective markets.
As owners and operators of the tonnage that forms the respective markets, these companies have insight into the actual state of the market, rather than deriving opinion via intermediaries like brokers.
Euronav – which has the largest market capitalisation of the publicly-listed tanker companies – led a bullish round of Q3 financial results reporting, with chief executive Paddy Rodgers noting: “The direction of travel for the large tanker market has changed from going sideways to up. Demand for and supply of crude has continued to improve as OPEC production has increased and the dislocation from Iranian sanctions has boosted and will continue to boost commercial tanker operators. Whilst the VLCC delivery schedule will remain high over the next 12 months, active recycling activity has kept net fleet growth negative so far year-to-date.”
Suezmax operator NAT felt that the sector was enjoying a favourable period in the tanker cycle: “At this time (start of Q4) spot contract indexes for two out of five Suezmax routes for our 1M barrel tankers are above US$50,000 per day, compared with the first nine months of 2018, when the freight indexes showed about US$6,000 per day. This is a good illustration of the volatility in freight rates and the potential for earnings in the tanker industry when the tanker market turns. We believe there could be much more to come.”
An equally upbeat tone was evident in Teekay Tankers’ financial report.
“Crude tanker rates strengthened counter-seasonally during the third quarter of 2018, which is typically the weakest quarter of the year, and exceeded our results from last quarter,” commented Teekay Tankers’ president and chief executive Kevin Mackay.
“In the fourth quarter to-date, crude tanker rates have continued to strengthen, driven primarily by very low fleet growth as a result of high scrapping activity and higher oil production from OPEC, Russia and the United States. Higher oil production in the United States is also positive for mid-size tanker demand, due to direct exports to Europe on Suezmax and Aframax tankers and reverse lightering demand in the US Gulf. Looking ahead, we are very encouraged by the recent strength in crude tanker rates, and we believe that we are at the beginning of a more sustained recovery in the tanker market.”
Team Tankers could be forgiven for restricting its comments to its progress with its strategy; chief executive and former Stolt man Hans Feringa, commented “Despite a challenging freight market, Team Tankers focused on optimising its shoreside operations through the final integration of the Team and Laurin Shipping platforms. During the quarter, we exited operations in Sweden and consolidated vessel management in the Americas into our Houston office. In addition, we grew our in-house technically-managed fleet by shifting two vessels away from third-party managers and three more will follow soon. We are confident that our integrated platform will allow Team to deliver high quality transportation services at competitive total costs."
“The direction of travel for the large tanker market has changed from going sideways to up"
There was also a feeling of mild optimism for the progress of the product tanker sector so far this year. The largest public company in the sector is Scorpio Tankers, which has released results, but while the company is prolific with its mandatory SEC announcements on its latest short-term financial tactics, its commentary on the product tanker market was limited to one sentence: “The spot market for product tankers continues to face adverse market conditions as a result of an unfavourable global supply and demand imbalance, resulting primarily from weaker global refining margins, a lack of arbitrage opportunities, and the continued absorption of an influx of prior year newbuilding deliveries.”
Fellow product tanker operator Torm plc had far more to say on the state of the product tanker market in the first nine months of 2018.
“The product tanker market reached historically low levels in the third quarter, impacted by a decrease in demand growth and shorter sailing distances,” explained Torm executive director Jacob Meldgaard.
He continued: “I am nonetheless pleased that Torm continues to perform well in a difficult market…We believe product tanker freight rates have bottomed out in the third quarter, and in the fourth quarter we have experienced firmer product tanker freight rates, driven by increasing export activity in the US Gulf and a stronger crude tanker market. We maintain an optimistic view of the long-term prospects of the product tanker market.
Anglo Ardmore Shipping chief executive Anthony Gurnee also felt that product tanker markets prospects were bullish, commenting: "During the third quarter, we focused on optimising our operational and commercial performance under weak charter market conditions. MR charter rates bottomed out early in the third quarter as the market experienced significant downward pressure from Atlantic Basin local market issues that initially presented themselves in the latter part of the second quarter. Nevertheless, MR rates are now trending upwards, driven by increased cargo volumes and a significantly improved crude tanker market that is reducing the encroachment of larger tankers on MR trades.
"Despite the challenging market environment, we believe the MR tonne-mile demand outlook remains very positive, supported by continued strong underlying oil consumption growth of 1.4mbd for 2018 and 2019 and ongoing refinery expansion in export-oriented locations. Meanwhile, a record low orderbook, combined with scrapping that has accelerated during the recent market downturn, should result in net fleet growth of close to zero in 2018 and around 1% in 2019. In addition, we believe that the fundamental reshaping of the global petroleum supply chain related to the IMO 2020 marine fuel switch should significantly heighten MR demand from mid-2019 onward.”
Diverse fleet operator, but prominent in the product tanker sector, d’Amico International Shipping prefaced its results with the announcement that Marco Fiori was stepping down as chief executive at the end of the year, with his role have added to that of the company chairman Paolo d’Amico, who almost simultaneously was announced as the new chairman of Intertanko. It will be a busy 2019 for Mr d’Amico.
The outgoing d’Amico International Shipping chief executive pointed to refinery maintenance during the summer as one factor contributing to the weakness of rates over the summer. However, he stated that “the long-term fundamentals are all extremely positive, showing a growing world demand for oil-refined products and limited net fleet growth expected for the next years.”
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