TANKER MARKET INSIGHT - April 2018 Research Department, Strategic Development - Teekay
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TANKER MARKET INSIGHT April 2018 Research Department, Strategic Development
Monthly Summary
Large crude tanker rates rebounded in March, but remain at very low levels
March review: VLCC rates found a new low at the start of the month, however returned to ~$10,000/day toward the end of the month as
Asian refineries came out of maintenance. Opposite to the VLCC market, Suezmax rates were stronger at the start of the month thanks to
increased demand in the Black Sea/MED, but softened during the second half of the month. Pacific Aframaxes struggled due to ongoing
refinery maintenance in Asia, while decreased volumes out of Libya and Venezuela impacted the Atlantic market. LR2s found positive
support from an increase in floating storage and an arbitrage opening up for long haul trades (e.g. UKC to Australia).
April outlook: VLCC rates may find some support from high levels of scrapping and as refineries increase throughput ahead of the peak
summer demand months. We expect the mid-sized segments to remain flat in April, however increased Nigerian production, a tightening
VLCC market, and increased Russian exports out of the Baltic could provide some support to rates.
Wild cards: The US recently announced plans to impose tariffs of $50 billion on Chinese goods, prompting China to retaliate with similar
tariffs on American imports. It is unclear at this time how far these tariffs will go as the two countries go tit–for-tat. If tariffs were to extend to
the energy space, it could have implications for crude tanker trades (particularly if it leads to a reduction in long-haul crude movements from
the US to China). The US has given a deadline of May 12th for European allies to amend the 2015 nuclear deal with Iran or they will refuse to
extend waivers of US sanctions, which could lead to a reduction in Iranian crude exports. New Venezuelan sanctions may also be on the
cards, as President Trump’s newly appointed National Security Adviser and Secretary of State embrace a more hardline foreign policy.
20 Clean Spot Rates 35 Crude Spot Rates
18 LR2 MR Aframax Suezmax VLCC
30
16
14 25
$’000s / day
$’000s / day
12 20
10
8 15
6 10
4
5
2
0 0
Mar-17
May-17
Apr-17
Jul-17
Feb-18
Mar-18
Oct-17
Nov-17
Dec-17
Jun-17
Aug-17
Sep-17
Jan-18
May-17
Mar-17
Apr-17
Jul-17
Feb-18
Mar-18
Oct-17
Aug-17
Sep-17
Nov-17
Dec-17
Jun-17
Jan-18
Source: 90% of Clarksons
2Spot Market Review and Outlook
Tanker demand could find support in Q2 from higher refinery throughput
Feb’18 Mar’18
Segment Spot Rates ($/day) March Review April Outlook
Source: 90%
Clarksons
VLCC rates struggled at the start of the month Saudi crude exports are expected to remain flat in
as rates found a new bottom. However, rates April at ~7mb/d. However, we expect high levels of
started to find some relief toward the end of March VLCC scrapping to continue, which should help
VLCC 5,100 5,600
as refineries in Asia came out of maintenance. By tighten fleet supply and allow rates to recover as
the end of the month rates reached ~$10,000/day refineries ramp up throughput ahead of the peak
for the first time since January. summer demand season.
As expected, Suezmax rates found some
Suezmax demand should continue to find some
support at the beginning of March due to an
support from a recent increase in Nigerian oil
increase in cargoes from WAF, supported by
Suezmax 7,400 9,100 production, which recently hit 2 mb/d for the first time
additional demand in the Black Sea / MED.
since October 2015. A stronger VLCC market could
However, rates gave up some gains toward the
also provide some support.
end of the month, despite a stronger VLCC market.
Tanker demand in the Pacific remained Rates are expected to remain relatively flat in
Aframax
8,600 7,300 subdued in March as regional refinery April, though an increase in imports as refineries exit
(Pacific)
maintenance approached a seasonal peak. maintenance could provide some additional demand.
Baltic rates found some support at the start of Heavy Russian refinery maintenance ahead of
March due to weather conditions. However, this the FIFA World Cup in June could lead to an
Aframax
8,500 8,100 was offset by short-term outages in Libya at the increase in crude exports from the Baltic and Black
(Atlantic)
start of the month and a continued decline in Sea during April. However, this may be offset by a
Venezuelan crude exports to the USG/Caribs. continued decline in Venezuelan crude exports.
LR2 rates were the highest since October 2017 LR2 rates appear to be easing as we enter April.
as an increase in floating storage and an open arb Asian imports of Western naphtha remain relatively
LR2 7,800 11,900
for long haul product trades (e.g. gasoline moving subdued due to a closed West-East arb, with an
from UKC to Australia) gave support to rates. estimated 1.3 MT arriving in April.
3Time Charter Market
VLCC 1-year TC rate sinks to lowest since Q4-2013
Broker Assessed Time Charter Rates
1 year time charter rates ($/day) 3 year time charter rates ($/day)
Feb’18 Mar’18 Feb’18 Mar’18
VLCC 22,500 21,250 28,250 27,250
Suezmax 16,500 16,500 20,000 19,500
Aframax 14,750 14,250 16,750 17,000
LR2 15,250 15,250 17,250 17,250
MR 14,000 13,750 14,750 14,750
Clean 1 Year Time Charter Rates Crude 1 Year Time Charter Rates
30 55
MR LR2 Aframax Suezmax VLCC
28 50
26 45
24 40
$‘000s/day
22
$’000s/day
35
20
30
18
25
16
14 20
12 15
10 10
Mar-16
Mar-17
Mar-18
Dec-16
Dec-17
Jun-17
Jun-16
Sep-16
Sep-17
Mar-16
Mar-17
Mar-18
Sep-16
Dec-16
Sep-17
Dec-17
Jun-16
Jun-17
Source: Average of Clarksons, Braemar ACM, and Poten
4S&P Market and Fleet Statistics
The tanker fleet shrunk in size during Q1-2018 as scrapping outweighed deliveries
S&P Activity Asset Values (USD million)
• Hansa sold the Aframax HS Medea (HHI/2003) to Coral for USD VLCC Suezmax Aframax LR2 MR
10.7M. A month earlier, Coral had purchased the Aframax HS 86.0 58.5 45.5 48.5 35.3
Carmen (HHI/2003) for USD 11.7M from the same Sellers. NB
(+1.0) (+1.0) (+0.5) (+0.5) (+0.3)
• Diamond Tankers sold 4x Japanese built Aframaxes (2016, 2x 85.0 57.5 46.5
2011, 2009) to Ionic (Greece) for USD 112M en bloc. The price is 0 44.0 35.0
(+1.0) (+1.0) (-1.0)
in line with our internal estimates.
64.0 42.5 31.0 31.0 26.0
• VLCC Vega Trader (Universal/2003) is rumored to be sold to New 5yr
(+1.0) (+0.5) (+1.0) (-3.0) (+1.0)
Shipping (Greece) for USD 21.5M with d/dock due. If confirmed, 42.5 27.5
this sale would highlight a decline in prices of older VLCCs, 10yr 20.0 20.0 18.0
(+1.5) (+0.5)
particularly with d/dock due (broker estimates currently at USD
25M for a 15 year old VLCC). 15yr 25.0 17.0 11.0 11.0 9.5
• A two-tier pricing structure has formed. Modern asset prices have
Source: Clarksons (Note: values in brackets indicates change from last month
been holding steady as there is still buying interest; however,
liquidity has been low as owners are unlikely to sell at these levels. Fleet Statistics
Older tonnage (15+ years old) faces downward pressure as scrap
prices, which propped up the floor, have softened. • The global tanker fleet shrunk by 0.8 mdwt, or 0.1%, in the first
quarter of 2018 as scrapping outweighed new tanker deliveries. A
Total Tanker Fleet Growth total of 8 mdwt was scrapped in Q1-2018, which was the highest
quarterly scrapping total since Q3-1982 (see back page article).
Scrapping Deliveries Net Growth (% of Fleet)
50.0 5.8% 10% • We estimate that the tanker fleet will grow by 2.3% in 2018.
4.8%
40.0 3.8% 6.0% 8% However, we are assuming a 2018 scrapping total of 16 mdwt vs. 8
2.3% 2.4%
Million DWT
30.0 1.7% 6% mdwt in Q1-18 alone. If scrapping maintains its current pace for the
3.2%
1.3% rest of the year then fleet growth in 2018 may be close to zero.
20.0 4%
10.0 2%
Forecasted Fleet Growth by Size Range
0.0 0%
-10.0 -2% VLCC Suezmax Aframax LR2 Panamax MR
-20.0 -4% 2018 1.9% 3.6% 0.9% 3.0% 2.8% 1.6%
2019 2.6% 2.2% 2.2% 0.9% 0.8% 3.9%
Source: Clarksons, internal estimates Source: Clarksons, internal estimates
5Economy and Oil Demand
Improving economic and oil demand forecasts, but with increasing political risks
Economy Outlook
World GDP Growth
• The OECD recently increased their forecast of global economic growth in
2018 and 2019, in line with recent forecast upgrades from the IMF and 4.0
World Bank. 3.5 3.7 3.6
• According to the OECD, new tax reductions and spending increases in 3.0 3.3
3.5
3.2
the US and additional stimulus in Germany are the key factors behind the 3.0
2.5
Percent
upward revision. However, the OECD highlights the risk of escalating
trade tensions that could be damaging for global growth and jobs. 2.0
1.5
GDP growth is projected to pick up over 2018 – 2019, partly due to 1.0
USA
tax reductions and higher government expenditure.
0.5
Growth is set to remain robust in 2018 – 2019 due to supportive
Europe 0.0
monetary policy, improving labour markets, and higher confidence.
2014 2015 2016 2017 2018 2019
GDP growth is set to remain around 1.5% in 2018 before easing to Average of IMF, OECD, UN, and World Bank
Japan
around 1% in 2019.
Growth surprised on the upside in 2017, helped by a strong
China
rebound in exports, but is set to soften to just below 6.5% by 2019. Global Oil Demand Growth
2.0
Change in Demand (mb/d)
Oil Demand Outlook 1.9
1.5
1.6
• The IEA has once again raised their forecast of global oil demand growth
1.4
1.6
in 2018 to ~1.5 mb/d. The increase reflects stronger observed demand in 1.0
the OECD over the past few months. Over the past two months, the IEA 1.1
has increased their 2018 demand forecast by ~200 kb/d.
0.5
• Brent crude oil prices have remained above $60 / bbl since Oct’17, and
reached $70 / bbl in both January and March 2018. Prices continue to be
0.0
supported by lower crude stock levels (close to the 5-year average) and
2014
2015
2016
2017
2018
the threat of oil supply disruptions (e.g. Venezuela).
Average of IEA, EIA, and OPEC
6Demolition Derby
Tanker scrapping in Q1-2018 was the highest in over 35 years
Think back to 1982. “E.T. the Extra-Terrestrial” was top at the box Tanker Scrapping vs. Deliveries Q1-2018
office and Michael Jackson’s “Thriller” was number one in the 18
Deliveries Scrapping
charts. Sony released the first commercial CD player, and a gallon 16
of gasoline cost just 92 cents. It was also the last time we saw 8 14
mdwt of tankers scrapped in a single quarter… until now. 12
No. Ships
10
Tanker scrapping has started 2018 with a bang, as a combination 8
of low freight rates, high scrap prices, an aging tanker fleet, and
6
the impact of upcoming vessel regulations have combined to
4
create the perfect “scrap storm”. Since the start of the year a total
2
of 8 mdwt of tankers have been scrapped, including 17 VLCCs, 3
Suezmaxes and 14 Aframaxes. The average age of scrapping has 0
VLCC Suezmax Aframax / LR2
been 20 years, though the total includes a significant number of
vessels in the 17-18 year category. This indicates that many Source: Clarksons
Owners are deciding not to go through with the 17.5 year
intermediate survey, particularly in the VLCC sector where If this pace of scrapping is maintained for the rest of the year,
earnings have been sub-OPEX for much of 2018. tanker fleet growth could be close to zero in 2018 (or even
negative for the first time since 2001). Our view is that low
Quarterly Tanker Scrapping earnings and high scrap prices will continue to spur scrapping
9 throughout the year; however, it is perhaps too much to hope that
8
the torrid pace seen in Q1 will be maintained. Scrap prices have
7
started to ease back from the peak of $480 per ldt seen in March,
6
and tanker earnings have firmed slightly in recent weeks (albeit to
m. DWT
5
levels which barely cover OPEX).
4
3
The recent increase in scrapping was anticipated, however the
2
1
volume of vessels scrapped has exceeded all expectations. This
0
elevated scrapping should be a positive for the tanker market as
we move through 2018, particularly during the second half of the
year when we expect an improvement on the demand side due to
a rebalancing of oil markets and an easing of OPEC supply cuts.
Source: ClarksonsYou can also read
