EA Gibson: Tanker Market Outlook Stays Bullish

The turbulent month of August which saw instability in global financial markets, especially in China, has not shaken the outlook for the tanker market which remains bullish and offers highly attractive earnings, according to the London-based shipbroker E.A. Gibson.

Irrespective of market fluctuations, this year appears to be a great year for most tankers with rates being well above previous years, Gibson says. Record high world crude production supports the tanker market and demand remains strong as low oil prices typically stimulate growth in private consumption.

At the same time, a persistent oversupply necessitates storage. Approximately 7% of the current very large crude carrier (VLCC) fleet is presently not actively trading, with the vast majority of these units engaged in storage (Iranian and non-Iranian crude, fuel oil). The VLCC spot market experienced a downwards correction in August, however rates have recently recovered and are now beginning to stabilise, the shipbroker says.

The fact that China is moving away from a substantial growth phase will certainly affect the industry to some extent. China’s new stance will have most impact on the dry bulk segment since the country imported 66% of the world’s seaborne volume of iron ore, 34% of metallurgical coal and exported 22% of finished steel traded volumes in 2014.

However, the impact is not as dramatic for tankers as high crude oil production is the key demand driver. Bottom line is that these record volumes of crude must be transported or put in storage and eventually used by the end consumer regardless of short-term market fluctuations, according to Gibson.

Barring any major economic event, demand is still growing and the fact that Iranian sanctions are expected to be lifted combined with OPEC’s reluctance to reduce its daily production contributes towards appealing rates into next year. Yet, the weight of new vessel supply will begin to take effect in the latter stages of 2016 and into 2017.

In the long term, Gibson predicts that reduced investments in oil exploration from non-OPEC countries observed currently may strengthen OPEC’s power, translating into an even stronger crude trade out of the Middle East.