MSI: Tanker Earnings to See Muted Upside by April

Tanker market earnings should experience a limited upside from current levels by April with time charter rates being under pressure as a result of growing supply of large crude and products tonnage, Maritime Strategies International reports in its latest Tanker Freight Forecaster.

After what was a strong last quarter of the year, the tanker freight market witnessed a substantial downdraft across the first half of Q1 2016.

“Spot earnings for VLCCs have effectively halved from their December highs and are currently at around USD 50,000/day. Product tanker rates have also drifted substantially lower after a spike at the start of the year,” MSI writes.

According to MSI, global oil demand growth is likely to be higher this year than the cautious estimates of the IEA, supported by low prices, although this is predicated on macroeconomic stability.

Floating storage provides a potential offset to a weaker trade growth scenario for crude and product tanker markets in what will be another year of excess oil supply at the global level.

T/C rates to come under pressure in 2016

“Strong Middle Eastern production, potential for rising US crude imports, and China’s appetite for crude driven by both new import licenses and storage builds should provide support this year for crude tankers, but risks on the demand-side are growing. Our spot rate outlook sees muted upside from current levels by April whilst we expect to see T/C rates start to come under pressure this year as a result of growing fleet supply, particularly at the larger ends of both the crude and products segments,” Tim Smith, Senior Analyst at MSI, said.

As in the crude tanker sector, floating storage is expected to play a growing role for products tankers this year, particularly larger sizes, and could act as a useful brake on what will be high rates of fleet growth for LR2s.

A growing middle distillates glut in Asia combined with an influx of large crude tanker newbuilds could see an increase in clean products stored and moved on these vessels’ maiden voyages. According to MSI, diesel inventories in Europe are swollen and the influx is set to continue in Q1 2016 as global exports from regions such as the Middle East, Asia and US show little sign of let up.

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