Lower growth rates for refinery throughput and drawdowns on swollen oil stocks has impacted the seaborne tanker market negatively, according to BIMCO.
The refiners and traders, primarily in Asia, have reduced their appetite for crude oil as margins and profits have diminished. Global oil prices came down from a mid-2015 level around USD 60 per barrel to bottom out just below USD 30 per barrel by mid-January 2016. Only to rise again and float around USD 50 per barrel from June onwards.
Seasonality and record high global stock levels of crude oil and oil products have brought an end to the strong freight market enjoyed since the second half of 2014.
Back in January 2016, BIMCO warned that “a ‘correction’ in demand may be fairly steep once it arrives.” The factors mentioned back then, are the same ones that matter today.
For the oil tanker market, which has had the highest supply side growth in the last six years, a reversal of fortunes was inevitable, BIMCO said.
BIMCO added that it reduced its forecast for crude oil tanker demolition in 2016 from 5 million dwt to 3 million dwt. By mid-August, only 0.76 million dwt of crude oil tanker capacity proved to be in such poor condition that it could no longer be traded in the strong freight market.
“This lack of demolition means the supply of new tonnage weighed down the market, making the shift to a fundamental imbalance quicker and harder felt. Especially as the growth rate on the demand side is coming down from last year’s peak,” BIMCO said.
Overall, the delivery pace has been quite steady in the first eight months, seeing 12.5 million dwt of crude oil tanker capacity delivered, leading to a fleet growth of 3.2%. For the final four months, BIMCO expects the delivery pace will pick up as more than 10 million dwt of new capacity is set to enter the market, bringing crude oil tanker fleet growth up to 5% for the full year.
BIMCO reiterates that, for the mid-term, the supply side for tankers is on the heavy side, which is expected to have a negative impact on freight rates as it is likely to exceed the growth of the demand side.
In spite of a decisive reduction in freight market rates, BIMCO expects that average VLCC earnings in 2016 will still sit above those of 2014. But the foreseen market changes have proven to be slightly harder than expected with a negative impact on freight rates in all other oil tanker segments. BIMCO now sees average earnings for all other oil tanker segments (Ex VLCC) below those of 2014.