Overcapacity, weak ‘trading demand’ and weak OPEC output have depressed the conditions that usually boost long hauls in the tanker shipping market, according to BIMCO.
As illustrated by the very weak rates for oil product transports during most parts of 2017, the hardship extended losses into 2018.
For VLCC spot earnings, 2017 was the worst year since 1994. However, the fact that China boost in demand with an increase in its volume imports by 10% in 2017, was not enough for the overall market to improve.
The attention is hence shifted back to the rebalancing of the global oil stocks, and to the question of what is the future ‘right level’ of global crude oil and oil product stocks going forward?
For 2018, BIMCO expects the amount of capacity leaving the fleet for demolition to go down slightly. This is due to a lower level of newbuilt deliveries and expectations of slightly improved demand growth in the second half of 2018.
In terms of new tanker orders, 2018 is off to a slow start. It seems as if the recovery of the dry bulk sector meant that most orders placed in January were for dry bulk ships. One very large crude carrier, two LR1s, five MRs and six handysize is it – for now, BIMCO said.
“One of the volatility factors to watch out for in the crude oil tanker market is the amount of capacity being used for floating storage.”
Depending on the amount of newbuildings delivered, a huge increase in the use of oil tankers for floating storage could deliver a ‘virtual’ decline in the operating fleet size.
This in turn affects the freight market balance in a positive way – at least temporarily. Even though gross delivery of crude oil tankers in 2018 will be lower than last year – the level of floating storage will be lower as well.