Tanker market outlook – strong fundamentals and geopolitical disruption

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. Looking back at 2023 for the tanker sector he notes there have been massive swings in spot earnings across different markets but there has been an elevation in the overall strength of earnings which continued into Q4 of the year.

You can listen to the full interview as a podcast in the player above

Smith highlights that the tanker sector is heavily influenced by policy and geopolitical developments. This has included OPEC+ views on cuts in production, the US lifting sanctions on Venezuela, overlayed on the backdrop of the Russia – Ukraine conflict. This has resulted in huge disruption to the oil markets, redistributing cargoes and stretching global trade routes to the benefit of the tanker sector.

“It doesn't look like that kind of turbulent backdrop from a geopolitical standpoint, and a policy position is going to change in 2024, and I think the tanker market tends to benefit from that disruption, and certainly has done or did in 2023,” Smith says.

Demand growth in 2024

MSI is expecting a slowdown in oil demand growth in 2024. The rebound in Chinese demand after the lifting of Covid restrictions is starting to slow. There is also the background of OPEC+ cuts and tightening supply. Smith also sees the market as coming to the end of the runway in terms additional benefits of the rerouting of Russian crude and the alternative sourcing of crude and products in regions such as Europe. “That stretch factor might ease off in 2024,” he says.

Tanker supply growth in the year ahead

Last year saw very low deliveries for tankers with just 15 million dwt of new tonnage delivered versus a previous five-year average of around 25 – 30 million dwt. This year will see the lowest level of deliveries since the 1980’s with 8 million of new tonnage and just two VLCCs expected to be delivered.

Although tanker ordering did pick-up in 2023 and is expected to continue it will take some time for that tonnage to materialise. Alongside that scrapping volumes are expected to rise having been “negligible” in 2023.

Rates forecast

“We expect though that market will moderate in 24, but remain relatively robust in terms of earnings levels,” Smith says. Charter rates are expected to see a 10% - 15% reduction but this will depend on the segment with VLCCs being relatively stronger than other markets. For Aframaxes and Suezmaxes, which have experienced “incredibly elevated earnings” mSI sees more potential downside in 2024.

Looking at the spot market he comments: “From a spot market perspective, which typically more volatile than time charter rates, we might expect to see a bit more in terms of the drop on an annual average basis between ‘23 and ’24.” He stresses that rates will remain high in a historical context, and they are talking about a moderation rather than a dramatic drop.