Tanker recovery on hold as pandemic worsens (source: Lloyd’s List)

Crude and product tanker earnings to be hit as inventories built up since March are wound down

As lockdown restrictions are tightened on key global economies, the demand for crude oil and crude products will shrink. Amid volatile markets, demand for tankers has fallen 14.5% this year, with global fleet utilisation at 80%

THE resurgence of coronavirus is seen as lengthening any global recovery in crude and product tanker rates for at least seven months as analysis points to contracting oil demand growth.

Saudi Arabia and Russia, the world’s biggest oil exporters, have said the recovery has slowed.

They outlined the current situation at a meeting of the Organisation of the Petroleum Exporting Countries. The Opec group plus other key producers held a ministerial monitoring committee that was reviewing existing production cuts of 7.7m barrels per day, due to be eased in January.

Amid volatile markets, demand for tankers has fallen 14.5% this year, with global fleet utilisation at 80%, Cleaves Securities said in its quarterly outlook for the shipping sector.

The Norwegian investment bank is among the most cautious of shipping analysts on 2021, citing the size of the overhang of inventories of crude and refined products that has built since economies went into lockdown in March.

Based on figures from the US Energy Administration, the pace of inventories’ drawdown means “the oil tanker market will experience the negative effects of net destocking until mid-2021”, the outlook said.

Daily tanker rates for smaller suezmax, aframax and medium range tankers have hovered around rates equivalent to operating expenses since mid-September.

Very large crude carrier rates are also lower, defying the normal fourth-quarter boost in earnings that typically reflects additional crude needed to refine gasoil and kerosene, middle distillates used for heating oil over the colder northern hemisphere winter.

“With the second wave of coronavirus bringing about a resurgence in restrictions in Europe, the recovery in underlying oil demand is by no means assured and is likely to waver. We may see a return to more extreme oil market over-supply,” said the latest report by MSI, the research division of shipbrokers Howe Robinson Partners.

“We maintain our view of a depressed market in the first quarter of 2021. Extending the outlook to the second quarter, we expect similar conditions albeit with modest improvements in spot markets as oil production increases and refining recovers,” it said.

Jefferies has the most positive spin, citing supply pressures on the fleet, including the low ordering of new tankers and scrapping at a 19-year low. This was expected to pick up pace next year.

VLCC rates will remain under pressure over the fourth quarter and the seasonally weakest first quarter of next year, the New York investment bank said.

The quarterly report said unwinding floating storage, inventory destocking and pace of oil demand recovery was pivotal to rates rising.

“The oil market will begin to recover in 2021 as coronavirus lockdowns ease and demand for transportation fuels increases,” the report said. “Weaker (crude tanker) rates in the short run might incentivise owners of older vessels to retire or scrap vessels in the coming months as breaker yards have begun to re-open.”

Global supply of crude is forecast at 92m bpd over the fourth quarter, up from 91.3m bpd in the prior three-month period, according to the International Energy Agency’s October Oil Market Report. Russia and Saudi Arabia will add an additional 300,000 bpd between them.

About half of crude produced is shipped to export destinations on the global trading fleet of some 8,500 crude tankers.

Refinery runs last quarter were stable but profits to produce products were the lowest in more than a decade in some countries. Runs are forecast to rebound to levels last seen in 2015, with large product stock draws anticipated this quarter.

Surging new infection statistics in the US and Europe mean demand growth in September will show the smallest gain since May, the IEA said. Diesel and gasoline should be back at 98% of last year’s consumption by the end of 2020, whereas demand for jet fuel will remain a third lower, according to the report.

Product tanker owners are touting additional refinery capacity being added in China and the Middle East Gulf as a positive for their vessels.

Any benefit can only be derived by increased tonne-mile demand. The IEA forecasts global refinery throughput to rebound by 4.9m bpd in 2011. That is two thirds of the 7.2m bpd lost in 2020, and the lowest since 2015.