BIMCO: Strong Demand in Oil Tanker Segment to Lift Rates

The loss making freight rate levels witnessed in the tanker market during October are expected to be somewhat reversed as oil tankers enter the peak season, which runs from November to January, according to BIMCO.

Crude oil tankers rates are expected to go up, but not to reach the highs of the previous peak season in 2016/17, as the market fundamentals “are too weak for that to happen.” The segment is experiencing the highest oil demand ever, but also a fleet growth of almost 5%.

Oil product tankers are also set to see a bigger tailwind which is expected to lift rates. However, the market remains fragile as global oil stocks, built up in 2014-2016 must be drawn upon for tanker demand to normalize again, BIMCO informed.

The immediate future of Kurdistan Regional Government (KRG) sour crude oil exports – to several European refiners via the Kirkuk-Ceyhan pipeline into the Mediterranean Sea – is uncertain. In response to the Kurdish referendum on possible independence from Iraq, the governments of Iran, Turkey and Iraq have issued statements of potential actions that may affect KRG exports, if implemented.

Before the conflict, KRG exported 600,000 barrels per day (bpd), going to Italy, Greece, Israel, Croatia, Spain and Sweden. At the end of October, exports amounted to just 200,000 bpd. The likely alternative to KRG crude oil, would be Russian exports out of the Black Sea. But Iraqi Arabian Gulf exports could also step in, as the oil grade is similar, BIMCO said.

In Asia, the ‘busy part’ of the Pacific typhoon season is still here, with most landfalls happening in China, Japan, Vietnam and the Philippines. So far, the typhoon season has passed without devastating key infrastructures or potentially affecting shipping. Nevertheless, extensive weather routing to ensure a safe voyage is being widely applied.

In total, US crude oil exports were up 59% year-on-year, for the first seven months of 2017. This equated to more than 900,000 bpd being exported, up by 340,000 bpd. While the main receiver of it, Canada, dropped its imports by 69,000 bpd, seaborne transports increased.

Exports during the first seven months to China were up by 168,000 bdp, exports to Japan up by 19,000 bpd, Korea up by 30,000 bpd and Singapore up by 31,000 bpd.

In addition, the shorter trans-Atlantic destinations like the United Kingdom, saw an increase of 52,000 bpd, Netherlands increased by 34,000 bpd and Italy increased by 18,000 bpd.

“This is the highest global oil demand ever but it’s also a large and growing fleet. This makes the oil tanker market a constantly changing environment. Longer sailing distances are always welcome, but what the tanker market needs most right now, is more tankers engaged in floating storage operations,” BIMCO said.

With Brent and Dubai crude futures pricing being in backwardation and the West Texas Intermediate (WTI) crude in a slim contango for the next 12 months, “a comeback for floating storage seems farfetched for the time being.”

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