A high level of disruption from the hurricane season is causing short-term volatility in Atlantic markets but the recent rally is supported by stronger fundamentals, Maritime Strategies International (MSI) said.
Oil demand growth has been out-performing expectations, with the US International Energy Agency’s (IEA) most recent estimate for global growth this year at 1.7%, supported by a very strong second quarter.
The fourth quarter is looking healthy for demand and “will see a major increase in refining activity which drives our expectations of increasing spot rates across the market,” MSI said.
Although there would only be a limited upside for T/C rates, positive fundamentals “are likely skewing the risks to the forecast to the upside.”
“Contributing to the improving platform for the tanker market have been two key features of the second half of 2017: global oil stocks are being drawn down and scrapping is increasing,” Tim Smith, MSI Director for Oil and Tanker Markets, said.
Although not supportive for immediate trade volumes, because stock draws will displace imports, a rebalancing of the oil market “is clearly required to generate long-term trade growth.”
Reduced floating storage also means more tonnage returning to the market. OPEC estimates a 40 million barrel drop in floating storage since the start of 2017. Compliance with OPEC output quotas has been lapsing, but nonetheless has contributed to the rebalancing.
The second major driver to the improvement is scrapping volumes, which have shifted up a gear to the point where sizeable amounts of tonnage are being removed from the market. The impact of recent activity will be limited but should this trend continue, MSI said it will be supportive for earnings.
As a result, MSI forecasts that at the end of the fourth quarter, a seasonal pick up in refining and demand will see average spot rates on the key TD3 route rise to USD 34,300/day and support the increase in T/C rates to around the USD 26 to USD 27,000 /day mark.
“At this stage though we are not expecting major support in Q1 18, unless we see a sustained surge in global demand growth,” MSI concluded.