BIMCO analysis at tanker shipping reveals that the market remains strong as demand stays high.
Demand
One of the most characteristic developments in 2015 was the declining price of crude oil during the second half of the year. Brent crude oil dropped from USD 57 a barrel (bbl.) on 1 July to hit USD 37 a bbl. on the last trading day in 2015. Going into 2016, the trend has continued and for the first time since April 2004, Brent crude oil and WTI light has traded below USD 30 a bbl.
More than anything else, the healthy refinery margins that have followed in the wake of the lower input price has stimulated oil products trading and refinery throughput. This has been a strong boost to overall oil tanker demand. Freight rates would not have reached the highest levels seen since Q4-2014, especially for crude oil tankers without it. This positive result was achieved via a prudent multi-year slowdown in fleet growth.
Supply
Fewer new ships have been ordered over the last few years and this has played an important role in creating the current ‘positive’ market. During the final four months of 2015, this trend ended and new orders were placed twice as fast, and the total for the year ended at 11.4 million DWT. All sizes got a fair share.
For the crude oil tanker segment, the newbuilding market was busy throughout the year. 35 million DWT was ordered, out of which 66 were VLCCs. But most significant was the sudden return of interest in aframax crude carriers. Following a decline in the aframax crude oil tanker fleet from 2013, no less than 57 new orders were placed in 2015. This was the highest number of aframax crude oil tanker orders since 2006- when 101 were ordered. 2016 marks the end of a multi-year slowdown in fleet growth for crude oil tankers. This slowdown made a freight market recovery possible as it coincided with an increase in tanker demand starting in mid-2014 when oil prices started to drop and inventories started building. Supply growth peaked at 6.5% in 2011 and slid to 0.5% in 2014.
BIMCO expects the crude oil tanker fleet to grow strongly in 2016. As demolition activity is likely to stay subdued, the fleet is estimated to grow by 5.9%. Most of the new tankers will be delivered in the second half of 2016.
Outlook
BIMCO expects to see prudent owners and operators starting to fix on long-term charters as the 3-year time charter freight rate for a modern VLCC has reached USD 44,000 per day and the 1-year time charter rate stand at USD 58,250 per day.
Considering that these are the best time charter rates since the crisis and the freight market for crude oil tankers is expected to soften sometime during 2016, the current market presents an opportunity for some, to secure solid revenue and earnings streams for a fixed amount of time.
The spot market may be very tempting at USD 100,000 per day, but the strong time charter market may be the window some owners and operators are looking out for to change their strategy for the coming year’s deployment mix of their fleets.
Moreover, in terms of the asset value at stake – the return on investment is much-improved from 2006-2007 when time charter rates were at the same level. In today’s market, you can buy a brand new “resale” for USD 100 million, whereas in 2006-2007, a resale of a new 310,000 DWT VLCC would cost you USD 140 million.
Read full analysis at BIMCO website
Source: BIMCO
