In the fourth part of our shipping market outlook series we are focusing on the tanker sector with Maritime Strategies International (MSI) analyst Tim Smith. Speaking to the Seatrade Maritime Podcast he describes a “rags to riches” story for tanker owners depressed demand during the pandemic gave way to a wave of market disruption from the Russian conflict in Ukraine.
You can listen to the full interview as a podcast in the player above
From the impact of the pandemic oil demand and production from major producers recovered through 2021 and into 2022. But it was the Russian invasion of Ukraine that had an abrupt and swift impact to the tanker sector.
“The immediate impact of that was to push tanker spot rates up very quickly. And then subsequently, we saw trade flows change rapidly in response to sanctions on Russia, and we saw a dynamic shift in favour of longer haul voyages for oil coming out of Russia as Europe reduced its intake,” Smith explains.
“The consequence of that for the tanker market in 2022, is that we saw conditions go at the start of the year from very weak spot markets to through the year very strong spot earnings, both for the crude and product markets.”
Tonne mile growth
Tonne miles grew very quickly for the sector as Russia crude exports were diverted away from Europe to China and India, and European countries needed to source from new markets.
Smith said that the demand side for the tanker market had both become very complex and fast changing. “And it's still changing now as we enter 2023, we have full sanctions imposed or bans on seaborne crude from Russia to Europe,” Smith says. “So, the disruption to the market and wider trade, picture and patterns continues to change.”
Tanker demand in 2023
Last year the overall trade growth was doubled in terms of deadweight demand for tankers largely due to the increase in tonne miles and this multiplier effect is expected to continue in 2023 although with some slowing in trade growth. For last year MSI estimated all tanker demand for both crude and products at about 8%, and this is expected to slow about 5% in 2023.
“But the consequence will still be a buoyant market with buoyant underlying fundamentals, although we do expect some moderation in spot earnings, we expect some fluctuation,” Smith says.
“Our expectation for 2023 is that we will see some moderation in overall levels of earnings, but we still expect them to stay fairly high, certainly in comparison to start 2022 And particularly 2021, when we saw very weak markets.”