The ghost of Christmas past…

The tanker market began 2017 in relatively positive fashion; rates last December averaged around $30,000 / day for Suezmaxes and around $25,000 / day for Aframaxes as OPEC squeezed out as much crude as it could ahead of supply cuts, and some of this strength carried over into Q1-17. However, rates quickly turned in Feb / Mar’17, and after a slight rally in Q2 began a long, slow decline to multi-year lows during the third quarter.

The ghost of Christmas present…

The two drivers of this steep decline in rates during 2017 have been high fleet growth, and OPEC supply cuts. Tanker fleet growth is coming in around 5% this year, which is in line with projections at the start of the year, but OPEC supply cuts have been more impactful than initially forecast.

The problem with OPEC cuts for mid-size tankers is two-fold; firstly, it means fewer cargos from load regions that are typically far away from key discharge areas, hence there is a detrimental affect on overall tonne-mile demand. Secondly, a large drop in Middle East cargos has forced more VLCCs into the Atlantic basin, where they compete with Suezmaxes. This has pushed down rates across the crude tanker space.

The ghost of Christmas yet to come…

Looking ahead to 2018, we believe that better times are ahead for the tanker market, though some challenges still need to be overcome before we will see meaningfully better rates.

Fleet growth is set to fall to ~3-4% next year and to ~2% in 2019. Meanwhile, OPEC supply cuts may start to reverse in 2H-2018 (despite OPEC’s recent announcement that cuts will be extended to end-2018) as global oil inventories trend down towards 5-year average levels and as oil prices find support. This should help tanker fleet utilization, and therefore rates, as we move into the latter half of 2018. With any luck, by next Christmas the tanker market will once again have reason to find cheer!