MSI: Major Gains in Crude Tanker Market to Be Limited

The crude tanker market is forecast to experience a limited winter upturn, as only the Very Large Crude Carrier (VLCC) sector showed any sizable movement in October, with spot earnings on TD3 increasing sharply to around USD 40,000/day, according to Maritime Strategies International (MSI).

Spot activity in other segments mostly moved sideways, although one year T/C estimates have seen some improvement in the sector, suggesting an improvement in sentiment. As a result, expectations of a relatively muted winter upturn remain intact but policy decisions are looming large.

“Donald Trump’s victory in the US presidential elections isn’t likely to have a huge effect on the market in the near-term unless it destabilises the US economy,” Tim Smith, MSI Senior Analyst, said.

He added that in the longer-term there is “clear risk to shipping should protectionist policies be imposed, whilst domestic energy production in the US could be further encouraged as red tape is removed.”

For the fourth quarter VLCC upswing to be maintained, the market will need to see substantial draw from Asian demand. A renewed surge in Chinese buying implies further constructive conditions, but having attained levels close to its expected forecasts and given pressure from fleet growth, any major gains “are likely to be limited and brief.”

An improvement in the VLCC market should also be viewed as a positive lead indicator for Suezmax spot earnings if it can be sustained. Suezmax and Aframax freight markets have lagged VLCCs in winter upturns in recent years, but encouragingly Aframax spot markets have seen some sharp upward movements in the first half of November, MSI said.

The MSI Suezmax spot rate forecast sees modest improvement across the three-month horizon, predicated on seasonal demand and through the remainder of 2016 is likely to see substantial upside, which should also pull up T/C rates. By March though spot market earnings are expected to have returned below USD 20,000/day.

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