Global Tanker Market Poised to Benefit from Iranian Supply Chain Dislocation

The stars are aligning for the global tanker market which is in dire need of recovery. The key factors heralding the pick up in rates include continued improvement of demand for and supply of crude driven by an increase of OPEC production and the dislocation from Iranian sanctions, Paddy Rodgers, CEO of Belgian tanker shipping company, said.

“The direction of travel for the large tanker market has changed from going sideways to up. Whilst the VLCC delivery schedule will remain high over the next 12 months, active recycling activity has kept net fleet growth negative so far year to date,” he said, commenting on the company’s third quarter results.

For the third quarter of 2018 the company had a net loss of USD 58.7 million, further widening last year’s net loss of USD 28 million.

However, the company is all set to tap into the anticipated market recovery, especially having fully integrated Gener8’s fleet.

“An accretive expansion of over 40% of our fleet size via the Gener8 merger has positioned Euronav with one of the most modern, efficient large tanker fleets accompanied by the strongest balance sheet including USD 677 million of liquidity. This leaves us ideally levered to an upgrade on improving tanker cycle fundamentals through 2019 but also further anticipated positive developments from regulatory changes to shipping markets from the application of IMO 2020,” Rodgers explained.

As explained, the Gener8 merger was an important part of the company’s IMO 2020 preparation as it improved the fuel consumption dynamics of Euronav’s VLCC fleet by reducing its average age by 25%, resulting in the youngest VLCC fleet in the quoted tanker sector.

Tanker market

Euronav said that demand for oil continues to be robust despite a higher price for crude in recent months and rising trade tensions from US/China tariff impositions.

Trading movements continued to build through Q3 – traditionally the lowest transit quarter for large tanker shipping. This unusual activity was driven largely by returning production increases from both OPEC and from US exports, driving ton miles growth. The trend has progressed further during Q4 augmented by increasing seasonal flows and the developing Iranian situation, Euronav said, adding that it expects the trend to continue to build through 2019.

The company pointed to three caveats to a more positive outlook for the tanker market.

“Firstly, trade tensions and a sustained elevated crude price are likely to constrain global GDP growth and indirectly the demand for tanker tonnage. Secondly, fragility among some key oil producers could see supply restrictions driving the oil price even higher.

“Lastly, the next 12 months will bring sustained delivery of (primarily) VLCC newbuilding supply. Recycling of 46 VLCC equivalents year to date has ensured fleet growth has been negative so far but requires further progress,” the company said.

The Belgian tanker owner added that the US led sanctions against Iran have specific implications for the large global tanker market.

Namely, Iranian export barrels have largely been unavailable to the global commercial fleet so a direct consequence for large tanker operators is an increase in demand whilst Iranian sanctions are in place.

Currently there are 14 inactive Iranian VLCCs implying a similar substitution requirement for tonnage from the global fleet. This requirement is likely to grow and be maintained as US sanctions are fully applied from next month, the company pointed out.

“However, further fleet rebalancing is required before this supportive background can be fully translated into improved freight rates on a sustainable basis,” Euronav concluded.