Further upside volatility is expected in the crude tanker market in 2016 as a result of OPEC’s (Organization of the Petroleum Exporting Countries) decision to effectively maintain oil output levels, Maritime Strategies International reported in its latest Tanker Freight Forecaster.
Average VLCC spot earnings for the Baltic Exchange’s ME-Japan voyage (TD3) have exceeded USD 100,000/day in the first half of December.
Over the six-month horizon of the latest report, upside potential remains high, with a combination of burgeoning trade and continuing low prices supporting global oil consumption and suppressing domestic crude production in North America.
MSI analysis shows that at the end of the first week of December between 30-35% of the VLCC fleet was not underway, being either moored or anchored.
“The decision by OPEC to keep the taps open implies that the inverse relationship between the crude price and VLCC rates will continue, presenting clear upside potential over the next six months. A scenario in which crude oil prices are suppressed across 2016 could lead to a boom in tanker earnings of comparable magnitude to 2007/8,” Tim Smith, Senior Analyst at MSI, said.
Due to the second highest annual level of tanker deliveries ever predicted in 2016, the MSI analysis cautions that fleet growth will start to impact the market through the second half of the year.
Other crude tanker segments are also performing strongly and MSI predicts they are likely to see more upside in December and into January as crude oil prices deteriorate.
Suezmax spot earnings gained in the second half of Q4 with both the Atlantic and Black Sea markets continuing their progress from October. The West Africa – Europe spot earnings increased to an average of USD 59,500/day in November and have held close to that level in December, the report adds.
“Although these markets haven’t yet seen major gains, Suezmaxes in the Middle East were reportedly tracking increases seen for VLCCs, suggesting higher rates will spread across the market through December,” MSI said.
Aframax spot earnings also rallied in November, building on gains made in October. As in the Suezmax segment, further upside has yet to be seen in December from November levels, although given the magnitude and timing of the rise in the VLCC market this cannot be ruled out.
Aframaxes are likely to see fewer benefits from strong Middle East output than their larger counterparts and production in established loading regions such as Latin America and the North Sea is vulnerable to low crude prices and competition from larger sizes and long-haul trades.