In a 2021-2025 Tanker Market Outlook by McQuilling Services, the shipbroking and consultancy firm finds crude fundamentals under intense pressure entering 2021 on subdued economic activity, although expectations for a sustained but gradual recovery remains intact.
The traditional tonne-mile demand growth is projected to increase by 5% for VLCC tankers this year. However, including demand changes from the unwinding of floating storage, the McQuilling report forecast a 12.5% reduction year-on-year.
“As the world restores demand following the Covid-19 demand disruptions, we find structural challenges to the crude demand story over the medium term, including decarbonisation efforts and the inclusion of biofuels into product supply,” the Tanker Market Outlook report stated.
“As such, we project that crude demand likely peaked in 2019, indicating that the fundamental outlook for crude tanker demand will face headwinds over the longer term.”
Demand for tankers transporting refined products is seeing substantial support from increasing utilisation of refinery capacity in the Middle East, whereby gasoil and jet fuel length find growing export opportunities to the West and notably Europe.
Furthermore, the Middle East naphtha balance is coming under pressure from shifts in refining yields, suggesting longer-haul movement to Asia from West of Suez export centers.
“Finally, we find MR tanker demand supported by activity between the US Gulf and Latin America, while refinery closures in the Australia/NZ region underpins growing demand in the East, where additional positive factors emerge, including robust growth from the Middle East to East Africa,” the report wrote.
In terms of vessel capacity supply, crude tanker fleet growth, when measured on an average inventory basis, will grow 1.2% in 2021, despite McQuilling’s projection for 94 crude tanker deletions this year.
Net fleet growth in 2022 and 2023 will continue to trend near 0% growth despite a flurry of contracting in the second half of 2020 as a reaction to attractive newbuilding pricing.
Long term projections for vessel deliveries point to a cyclical delivery peak in 2024/25, which supports McQuilling’s call for a deteriorating earnings profile in the final year of its forecast period.
Spot market earnings for VLCCs are projected to average $9,400 a day in 2021 on a no-scrubber basis. The peak year for VLCC spot market earnings has been pushed out to 2024 at $39,500 a day while aframaxes are projected to return $6,800 a day in 2021 before taking a similar course. The years 2022 and 2023 will see improving fundamentals for crude tankers, although McQuilling is skeptical that crude tanker earnings in 2022 will fare significantly better than the 2018 market.
“The findings from our analysis show a more promising balance of fundamentals in the refined product tanker segments of the market. The strong demand recovery anticipated from core product balance mismatches, along with relatively light increases on the supply side will support non-eco spot market earnings on triangulated voyages for LR2 and LR1 tankers, averaging $17,100 a day and $15,900 a day, respectively over the first two years of our forecast period,” the report stated.
The MR2 segment is projected to average $14,200 a day over the forecast period, basis non-eco consumptions, with the 2022-24 period revealing significant strength, following a challenging 2021.
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