Using VesselsValue Trade tool, VesselsValue’s head trade analyst Charlotte Cook assesses the current status of the dirty cargo sector of the tanker market, using historical and current AIS-derived supply and demand data
The impact of Covid on the dirty tanker market is still present as rates continue to deteriorate into May. After making a small recovery towards the end of March, VLCC rates dropped again at the start of May to below opex, resulting in more than a 100% year-on-year decline. Alongside weak earnings, crude tanker demand is also showing few signs of recovery.
Back in early 2020, reduced demand due to Covid-19 was supporting the tanker market, further intensifying the need for floating storage, as refining curtailed and onshore storage reached capacity. Crude tanker demand experienced a rapid decline between May and October in 2020 as cargo miles fell to lows not seen since 2016. A
Covid-related demand slump was finally impacting the tanker market and six months on, things have hardly improved
This year, crude tanker cargo miles stayed consistent between January 2021 and March 2021, until they took another blow mid-April when cargo miles fell again to 30.68 dwt billion nautical miles. This was 9% lower than cargo miles at the same time in April 2020, when tanker rates were soaring due to a contango oil market and around 10% of the dirty tanker fleet was being used as floating storage.
Cargo mile demand can also be compared with fleet growth for insight into market balance. Since June 2020, cargo mile growth has been negative, with the relatively stable fleet growth outstripping demand for the last 11 months. At the lowest point, cargo miles were 12.5% lower in October 2020, versus pre-pandemic levels in October 2019.
Despite a large number of scrap candidates, weak cargo mile demand coupled with a crowded VLCC orderbook is expected to prolong the current supply and demand imbalance well into 2021, as the oversupply of available vessels continues.
Global crude demand is still predominantly being carried by demand in the East, with China being the main consumer, supporting Chinese refiners. Crude tanker demand into southeast Asia was confidently growing for the first three months of this year, increasing by 42% between the start of January and mid-March. Demand started on a downwards trajectory into May, falling by 34% between mid-March and May. This suggests that even the driving force of crude imports (southeast Asia) is still showing signs of volatility.
Hopes are that global oil demand must pick up at some point, but these hopes are further threatened by the resurgence of Covid outbreaks in some countries, especially India. India is a significant importer of crude oil, ranking third place for the highest cargo miles in the past year. Global cargo miles into India grew by an impressive 81% between the end of November and mid-December 2020, as the number of Covid cases declined. Since then, between mid-December and May 2021, cargo miles have fallen again by a further 20%, as the number of Covid cases has surged in recent months.
With nearly 500 crude tanker journeys in the past year heading into the country, equating to 8% of global cargo miles, the Covid crisis in India reminds us yet again how demand is still being jeopardised by the virus, with strict lockdowns reducing the need for oil and causing operational blocks.
Did you miss the latest series of the free Tanker Shipping & Trade Webinar Week webinars? Register here to access all the webinars in the Riviera webinar library.