zoomIllustration; Image Courtesy: NAT

After a year of tumultuous political and policy upheaval, both oil and tanker markets are undergoing a process of rebalancing, according to Maritime Strategies International (MSI).

The fourth quarter of 2016 is capping what has been a mixed 12 months for the tanker markets, while the agreement by OPEC members and non-members alike to cut production in an attempt to reduce oversupply will be a core determinant of conditions in 2017.

Despite some seasonal upside in the final period of the year, 2016 has overall been a year of negative dynamics across the tanker industry both in terms of the annual change in freight rates and asset prices.

“Oversupply of productive capacity in the oil market has been mirrored by excess tonnage capacity in the tanker market. Both are now rebalancing and although fleet growth is expected to remain high in 2017, low earnings and the ratification of ballast water treatment regulations support MSI’s expectations that tanker scrapping will move sharply higher in 2017,” Tim Smith, MSI Senior Analyst, said.

He added that this will boost “a market recovery in 2018 and beyond, built on much lower fleet growth rates than being seen currently, both in the large crude and product tanker sectors.”

OPEC’s decision to cut output remains “fraught with uncertainty” on how the group will manage to maintain discipline and encourage non-OPEC participants to join in.

Despite the negative ramifications of such action, MSI cautions on becoming too bearish, given the relatively light cut by OPEC, prospects for crude coming out of the US and potential improvement in the refining sector, should the oil glut be alleviated.

“The tanker market, like the oil market, is in a clearing phase, removing over-supply and rebalancing. That process could take another year or so before returning to a position where sustained gains can be made, but we remain positive on the long-term outlook,” MSI said.