Gibson: OPEC Puts Pressure on Crude Tanker Market

The OPEC-led production cuts are having negative implications for crude tankers, particularly very large crude carriers (VLCCs), where earnings saw a significant drop since the start of the year.

Although no major changes have been seen in the absolute volume of spot VLCC fixtures out of the Middle East, this coupled with the ongoing rapid expansion of the trading fleet, forced spot earnings down to around USD 17,500/day in recent months, from over USD 40,000/day at the start of the year, a report from Gibson Shipbrokers shows.

“The dilemma faced by OPEC does not inspire much optimism for the crude tanker market, hoping to see increases in Middle East crude exports. If production cuts are extended through 2018, the only hope for owners will be continued strong gains in long haul trade, persistent floating storage and slowing fleet growth,” Gibson said.

In contrast to the developments in the crude tanker segment, so far to date the impact of production cuts on oil markets has been rather muted.

Although global OECD oil stocks have moved to lower levels relative to the five-year averages, they still remain at highly elevated levels.

For 2018, the International Energy Agency (IEA) expects to see a healthy growth in world oil demand at 1.4 million b/d, however, further gains are projected in non-OPEC supply. By far the biggest increase is anticipated in US oil production, which is forecast to rise year-on-year by 1.05 million b/d. Smaller gains are also expected elsewhere, most notably in Brazil, Canada and the UK, together accounting for a further 0.6 million b/d increase.

Although output in a number of other countries is expected to see a minor decline, the overall picture is that all of the forecasted increase in demand is likely be met by increases in Non-OPEC supply (crude, NGLs, biofuels, processing gains).

“If the forecast is correct, this leaves almost no scope for increases in OPEC crude output in 2018 from current levels. If OPEC decides to abandon its restraint, there is likely to be another build in global inventories and further downward pressure on oil prices,” according to Gibson.