CRUDE TANKERS IN 2018: A TIDAL WAVE OF NEW TONNAGE


Last week we took a look at what the orderbook means for the bulk carrier market in 2018. This week we’re doing the same for crude tankers (and product tankers next week). While we found that low fleet growth could mean a bumper 2018 for bulkers, the same cannot necessarily be said for crude tankers. 


Overall fleet growth
The world’s tanker fleet (including clean tankers) orderbook is 7.7% (853 ships) of the live fleet in terms of number of vessels and a massive 12.5% (75.9m dwt) in terms of tonnage. This skew hints at the large number of VLCCs and suezmaxes that are on order: 101 and 80 respectively.

VLCCs
The VLCC fleet has grown by 4.5% so far this year. Some 33 vessels have been delivered to date and the live fleet stands at 727 ships. Scheduled gross fleet growth is 7.2% for the rest of the year (19 vessels) and 6.0% during 2018 (47 vessels). These are big numbers, owing to en-masse ordering over the past few years and low scrapping rates – only 6 VLCCs have been demolished since January 1, 2016.

Suezmaxes
The picture is worse for suezmaxes. The orderbook currently stands at 15.0% – 80 vessels are on order, compared to a live fleet of 530. The suezmax fleet has already grown by 7.7% so far in 2017, thanks to the delivery of 38 new vessels, with a further 28 scheduled to arrive by December 31. Scheduled gross fleet growth is therefore estimated at 12.4% for 2017 as a whole and a further 6.9% during 2018 (41 vessels). Only 6 suezmaxes have been scrapped since January 1, 2016.

Scrap that
If demand for seaborne transport of crude remains at the current level, scrapping must increase in order to cut the already oversupplied crude fleet. This will lead to some tankers being demolished prematurely, which would further pressure ship prices in the years ahead. Research says that shortening crude tankers’ life expectancy by four years could lower secondhand prices by between 10 and 15%.

The average age of both suezmaxes and VLCCs is relatively young at 9 years of age, which again hints that increased vessel demolition would lead to tankers hitting the blowtorch before the end of their expected lifespan.

Crude picture
Cancellations and postponements could also help hold back the deluge of new tonnage about to hit the water in 2017 and 2018, but efforts will be futile unless there is a dramatic upturn in global demand for the seaborne transport of crude oil.

Global crude oil demand has remained healthy over the past few years, but low oil prices have swollen oil inventories across the world, which has limited import demand.

There has been a small glimmer of hope, however, which has helped boost crude prices this week – Brent is currently trading at just over $51/bbl.

US crude stocks fell by 7.2m bbl last week, far exceeding the 2.6 million barrel forecast, the US Energy Information Administration (EIA) said. It was the fourth straight weekly decline in America’s crude inventories, bolstering hopes that the long-oversupplied market was moving toward balance. Nevertheless, analysts noted that America’s crude and gasoline stockpiles remain above their five-year averages, which they said would limit price gains.

Crude supply from around the world looks set to be scaled back, due to planned production cuts, geopolitical or operational factors.

OPEC has hinted that its production cuts are here for the long term, and on Monday Saudi Arabia said it would limit oil exports to 6.6m bpd in August, down nearly 1.0m bpd from a year earlier.

Nigeria’s output slipped this week after leaks forced Shell to shut a pipeline that exports some 180,000 bpd of oil.

Meanwhile, the US is considering financial sanctions to halt dollar payments for oil from Venezuela, which is also experiencing civil unrest. These factors could impair the OPEC member’s 2.0m bpd crude exports.

If oil prices rise further, this will boost US shale oil production, which is striving to be globally competitive. Increasingly large amounts of light and sweet US crude oil are becoming available for export, much of which will go to Canada and Europe. Asia, however, is expected to take a growing share, which will offset some of the negative effects from lower US seaborne crude imports.

Yes, it’s a complex and mixed picture, but there are some bright spots. Let’s hope the tanker supply is able to be proportionate to demand, but that could some difficult decisions for shipowners.

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