According to data from VesselsValue, in the first five months of 2020, only 2.8m DWT of oil product tankers have shifted hands in the second-hand market, a 45% drop compared to the same period last year.
As a result the oil product tanker market has experienced a disconnect in the first half of 2020 with high spot earnings, while S&P activity has remained subdued.
Nevertheless, Peter Sand, Chief Shipping Analyst at BIMCO reports tha S&P activity, as well as the 1-year time charter rate, often serve as better indicators for the strength of the underlying oil product tanker market. Although the oil product tanker S&P activity picked up slightly in May to 0.49m DWT from 0.33 in April, it is hardly a change in trend. The low appetite for second-hand oil product tankers, despite spiking spot earnings, partly indicate that the medium-term outlook remains clouded by uncertainty. This is also indicated by the 1-year time MR charter rates that have started to feel the heat in June with substantial declines in a matter of weeks.
In addition, it is uncertain which shape the recovery of the global economy will take. The International Monetary Fund (IMF) has recently placed their bets on a swoosh-shaped recovery with real global GDP forecast to decline by 4.9% in 2020 but grow 5.4% in 2021. BIMCO similarly expects the global economy to recover at a slow and gradual pace.
No matter the recovery shape of the global economy, annual oil demand is set to plunge in 2020. In June 2020, the International Energy Agency (IEA) forecast that oil demand for the full year of 2020 would decline by 8.1 million barrels per day.
Moreover, data by top 10 nations of buyers highlight that especially Asian and European buyers have shown greater appetite for oil product tankers. Chinese buyers accounted for 22.3% amongst the 10 largest buyers, while Greece and Denmark respectively accounted for 23.6% and 12.3%. Other large oil product tanker buyer nations in 2019 included Singapore, Indonesia, and United Arab Emirates.
On the buyer side, Greece and Denmark stand out as the largest nations with respectively 28.1% and 19.8% shares of the top 10 seller countries. Singapore and Japan were the largest Asian seller nations in 2019 with 13.6% and 10.6% shares of total sales by the top 10 seller nations.
What is more, Mr. Sand reports that asset prices for oil product tankers have gradually recovered since 2017. As was the case with S&P activity, asset prices started to notably gain steam in the build-up to the 2020 IMO sulphur regulation coming into effect. This development is particularly evident with asset prices for medium-range (MR) oil product tankers, the workhorse of the segment, which peaked in the fall of 2019. At that time, a 5-year old MR2, defined as 41-55k DWT, had appreciated to just above 30 million USD, a large improvement from the 2016 low of around 23 million USD.
However, prices have started to dip in 2020 with the second-hand price for a 5-year old MR down by 15.7% year-to-date as of June 30 2020. Given the current oil demand forecasts which suggests a gradual recovery, it is likely that asset prices will continue to lose steam in the coming months.
Oil product tanker asset prices have generally appreciated in recent years on the back of expectations ahead of the IMO 2020 sulphur regulation. Now, with the demand shock of the COVID-19 pandemic, the tables have turned in favour of the buyers. Oil product tanker asset prices have come under substantial pressure and asset-play investors are now likely to emerge in the market
Mr. Sand concluded.