Grim tanker shipping performance expected till second half of 2021
Analyst Poten & Partners anticipates a gloomy tanker performance till second half of 2021
Late 2020, hopes were high for a tanker market recovery in 2021 supported by projections of a shift in US Foreign Policy, plus a rush of COVID-19 vaccines. Veteran shipbroker, Gibson, said: “… 2021 will bring further change. A change of leadership in the White House will see a shift in US Foreign Policy. Environmental factors will grow increasingly impactful. At the same time, an increasing number of dual fuel tankers will enter the fleet. COVID-19 will undoubtedly remain a factor, but it is hoped that with the rollout of vaccines, 2021 will be a better year for the world, even if the tanker market takes time to recover its strength.”
A different perspective
However, Poten & Partners had different sentiments. They remarked, “The tanker fleet has grown in 2020 with the delivery of 36 VLCCs, 29 suezmaxes and 18 aframaxes/LR2s. Ten panamaxes/LR1s and 63 MRs were added to the fleet as well. While these are by no means record deliveries, there was a significant drop in oil transportation demand and only very limited scrapping.
“The main underlying reasons for the weak start of the year are clear: low tanker demand combined with too many ships. Oil and tanker demand will remain challenging, at least through the first half of 2021 and maybe longer.”
The new waves of COVID-19 infections’ reinstating travel bans dented oil demand. The approval of several developed vaccines and upped production did not improve the situation as expected. Poten & Partners added, “Oil demand is still 4-6 million bpd below pre-pandemic levels and analysts don’t expect global oil demand to return to 2019 levels until sometime in 2022. We expected oil demand growth to be fairly slow in the first half of 2021, with possible acceleration in the second half of the year.”
Weak TCE performance
Poten & Partners noted some players in the crude oil segment have reported negative time charter equivalent (TCE) earnings. “2021 is not off to a great start. Usually the winter months are good for tanker rates, but not this year. A review of the daily market rates shows low Worldscale assessments, which lead to very low TCE earnings,” the analyst said.
It added that owners might settle for loss-making trips compared to having zero revenues, noting VLCCs, suezmaxes and aframaxes as casualties. Another disadvantage for the tanker shipping market is the excess of floating storage. The number of ships deployed for crude oil and refined product storage has declined after its peak in 2020. The release of floating storage cuts back transportation demand and adds tonnage to the market.
“Oil supply may not come to the rescue of the tanker market, as Opec+ remains remarkably disciplined, and non-Opec producers have limited spare capacity to bring to market,” Poten & Partners concluded.