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Buoyant tanker market sees risk from tonnage growth in H2: DNB Markets

Buoyant tanker market sees risk from tonnage growth in H2: DNB Markets
The bouyant tanker shipping market may be at risk of falling into a slump due mainly to an influx of vessel tonnage in the second half of 2016, and if OPEC decides to cut production to boost oil prices, according to DNB Markets.

The shipping analyst said its “greatest concern” for the supply-demand balance for tanker shipping comes from the deliveries of new vessels. The forecast tonnage delivery for the second half of 2016 is 17.1m dwt, significantly more than the 9.8m dwt expected in the first half.

“On our updated estimates, we estimate average annualised growth of transportation capacity to 5% in 2016. What will it take to employ additional 5% supply in 2016?” DNB Markets questioned. It noted that the approximate deliveries of 27m dwt in 2016 is 7.7% compared to the current fleet.

“We are also still concerned about potential increases in vessel speeds, although owners seem to understand that chasing incremental improvements in their TCEs by increasing speed would yield inferior spot rates, as increasing speed is the same as increasing effective transportation capacity. However, in laden condition it is rational to keep speed low due to the oil price contango,” the analyst said.

In the event that oil cartel OPEC cuts production to support oil price, it could turn out to be a “worst case” for crude tankers. “We remain most worried about a (still unlikely) cut in OPEC production, but also potential for Chinese demand stagnating, or even decreasing,” DNB Markets said.

On a positive note, the floating storage economics have proven to be the cushion to the downside for rates, and are likely to substantially lift VLCC spot and time-charter rates particularly if onshore crude storage facilities become full.

An increase in floating storage could also mitigate the effect from the 2016 fleet growth, helping to tighten the supply-demand equation into 2017 when new deliveries again is expected to decrease, the report said.