Tanker market plunge - the beginning of the end?

VLCC earnings Gulf/Japan have dropped from $100,000 a day a few weeks ago to under $40,000 a day now.

Lower refinery margins in Asia seem to be one culprit, leading to refiners in Asia cutting crude runs and initiating turnaround programmes after earlier deferring maintenance according to London broker EA Gibson.

In the West, European product demand remains strong but the end of the US driving season means arbitrage opportunities are disappearing exerting a downward pressure on product carrier rates, in particular handies.

The International Energy Agency recently predicted that the oversupply in the oil market will persist into 2016, despite demand growing at its fastest rate for five years. So with crude supply and demand taking longer to balance, demand for crude tankers looks set to to remain healthy into 2016 with logistical delays and operational inefficiencies likely to persist, says the broker. Despite economic uncertainty, China looks set to continue to soak up a portion of the surplus with an extra 50m barrels of storage capacity expected to fill over the rest of the year supporting tanker demand.

New York services provider McQuilling projects that the VLCC fleet will have grown just 2% by the end of this year to 638 vessels so the supply situation looks good. Suezmax equivalent percentages are put at 1% and aframaxes zero.

However the newbuilding delivery schedule gets much heavier next year. Some 17.7m dwt of VLCCs is due to deliver next year - more than 50 vessels, 6.3m dwt of suezmaxes and 6.1m dwt of aframaxes. Virtually nothing in these categories has been scrapped this year, unsurprisingly, so the surplus is likely to resume building.