Lower oil prices performed wonders for the tanker market in 2015. Tonnage demand surged and oil trade expanded because of high consumption demand and increased stocking activity. Tonnage supply was also kept in check as the contango in oil prices engaged many large tankers as floating storage because onshore storage tanks were full.
The most important positive effect of lower oil prices came in the form of reduced bunker costs for vessel owners. Spot rates for VLCCs increased by 27% on the benchmark TD3 route in 2015, but TCE earnings surged by more than 50% because bunker prices touched bottom.
For example, bunker prices for IFO-380 in Fujairah plummeted by more than 71% from $612/tonne in June 2014 to only $177/tonne in December 2015. The ratio of bunker costs to total voyage costs on the TD3 route declined sharply from more than 70% during 2011-13 to just 25% in 2015.
Moving ahead, a sluggish macroeconomic outlook and high inventories (both crude and products) across the globe are likely to start restricting growth in the global oil trade from this year.
Additionally, an inflated fleet size due to enhanced deliveries and weak demolition activity will also hurt tonnage utilisation and freight rates. In February, freight rates softened, but it is way too early to say whether this is signalling a change in trend or if it is just a temporary phase. If we go by what the fundamentals suggest, rates are likely to soften further in 2016.
In the oil market, Saudi Arabia and Russia agreed to freeze oil output at January levels after months of competition for market share by the world’s two largest producers to counter the slump in oil prices.
Oil supply is unlikely to show any reduction in the face of high inventories, increasing supply from Iran and other OPEC countries. Nevertheless, a production freeze is likely to impart some stability to oil prices by stopping significant fluctuations in prices. With stabilising oil prices and softening freight rates, there are fears in the market about a negative impact on the tanker market.
Drewry believes that despite softening freight rates, vessel earnings should remain attractive on the back of low bunker prices. The supply glut, high inventories and a weak macroeconomic scenario will keep oil prices subdued. As a result, vessel earnings will stay strong irrespective of developments in market fundamentals.
Source: Drewry Maritime Research
