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January bonanza for large tankers - but can it last?

January bonanza for large tankers - but can it last?
January may have started off a bonanza in the large crude tanker market but the question on everybody's mind was can it last?

VLCC earnings have averaged around $70,000 a day this year so far, suezmaxes $53,000, and aframaxes about $43,000 according to Clarkson Research figures.

Crude tanker demand declined 2.9% to 8.95trn ton-miles last year and is only forecast to rise a modest 1% this year, according to McQuilling Partners' summary of its latest Tanker Market Outlook. So explanations for the current situation must lie elsewhere.

As far as VLCCs go, the chartering of upwards of 30 ships for storage plays while the oil market is in contango must go a long way to explaining the current buoyancy, with suezmaxes also benefitting, but the current slump in oil prices could easily, and rapidly, go into reverse given the geopolitical situation.

The situation for aframaxes is rather different. On the demand side, falling FSU oil exports to the West and the start-up of the ESPO pipeline to take Russian crude east should have hit the aframax market. In fact aframaxes are still also sharing the boom - for supply side reasons it would appear. Healthy levels of scrapping and a slowdown in investment in the sector have meant that the aframax fleet capacity has actually been in decline since 2012. However, from this year that will reverse itself unless there is considerable scrapping.

McQuilling thinks that 2015 will remain strong for large crude tankers though it expects a softening come 2016 as a large number of deliveries join the fleet. Continued market strength will have a beneficial effect on asset values with the greatest increases in 10-year-old crude tankers - 22% for VLCCs, 18% for suezmaxes and 26% for aframaxes.