In what DNB described as “a triple whammy for crude tankers”, the Opec production cut will result in lower crude export from the Middle East, reduced floating tanker storage, and increased vessel speeds.
The cut in oil supply from the Middle East is an obvious negative to crude tanker demand, and spot oil prices increasing more than future prices will narrow the contango, which has supported VLCC rates longer than expected, or result in backwardation, according to DNB.
DNB added that a reduced contango, and of course backwardation, will likely release floating storage, now at about 160m barrels of oil onboard vessels not moving that amount to about 8% of the crude tanker fleet.
In terms of vessel speeds, ships have been sailing slower than optimal since the second half of 2014 and in the event of backwardation the laden speed will most probably increase, freeing up more tonnage in the waters.
“In other words, a cut from Opec is bad, bad, bad for crude tankers,” the report said.
Opec members agreed in Vienna on Wednesday to remove 1.2m barrels per day (bdp) from January 2017. Opec powerhouse Saudi Arabia alone agreed to cut output by about 500,000 bpd, taking the oil cartel’s output to 10.06m bpd from next year.
The medium term response from the cut will likely be met with higher output from US shale, which is expected to reduce gross imports though partly mitigated by a rise in light tight oil (LTO) exports – still likely a net negative for crude tankers, DNB forecast.
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