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Record high deliveries in January instantly threaten tanker shipping market

Record high deliveries in January instantly threaten tanker shipping market
A record high crude oil tanker delivery amounting to 5.5m dwt in January has instantly threw the sector's demand-supply out of balance and put pressure on freight rates, according to a latest report by Bimco.

The "unprecedented scale" of 5.5m dwt in crude oil tanker capacity represented a 220% surge compared to the delivered tonnage recorded in January 2016, according to Bimco's chief shipping analyst Peter Sand, citing data from VesselsValue.

The tonnage delivered in January 2017 alone already accounted for 22% of the crude oil tankers previous year's total deliveries. In comparison to the totals of 2015 and 2014, the January 2017 figure accounted for 48% and 51%, respectively.

"This record high crude oil tanker delivery growth is troubling, and worsens the balance between supply and demand instantly, due to sluggish demolition in this segment," Sand said.

From January 2014 until January 2017, demolition amounted to only 8m dwt, representing a very small proportion of 2.2% of the current crude oil tanker fleet.

The lion's share of January deliveries was taken by 12 VLCC deliveries totalling 3.68m dwt. Additionally, 943,000 dwt of suezmax capacity and 903,500 dwt of aframax capacity were delivered.

"This development in January highlights the fact that the crude oil tanker market faces headwind for the current year already," Sand noted.

In an earlier Bimco report on the tanker shipping market outlook, it was mentioned that prospects are grim due to the anticipated inflow of fresh tonnage and reduced crude output from Opec expected to put pressure earnings for operators.

Sand observed that while oil tanker shipping was profitable in 2016, risks are now seen for the market in 2017. The decision made by Opec and some non-Opec nations on curbing output has resulted in refineries no longer able to take advantage of low oil prices and not contributing to further stock building.

“Stock piling of oil benefits the tanker market, and a reversal will certainly harm it,” Sand said, adding that the drawing down of stocks poses further risks to a tanker market that is already seen to be struggling due to a high inflow of new capacity in 2017.

“2017 and 2018 are set for significant capacity to be delivered while the demand side eases,” he said. In 2016, crude oil tanker fleet capacity rose by 5.7% year-on-year and oil product tanker fleet expanded by 6.1%.

Sand pointed out that much of the present and future oil demand growth will come from Chinese cars, as the rest of the world is not demanding as much these days.

“Alternative sources of energy are, in some places already cost-competitive, and therefore gaining market share at the expense of fossil fuels. Still, recent subsidies to support the purchase of cars in China have proven effective. More cars will enter the streets, not the very ‘thirsty’ ones, but they will still push Chinese oil demand higher,” he explained.

“That is why Chinese crude oil imports are also a factor for tanker shipping in 2017. As refined oil exports out of China are also becoming a factor, product tankers may look increasingly to China too, shying away from the traditional big oil consuming regions in the west.”

In 2016, China imported 381m tonnes of crude oil, up 13.6% from 2015.

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