Large Crude Tankers Hit the Hardest by Perfect Storm

Large crude carriers have been hit the hardest by the perfect storm in the tanker shipping sector especially on the heels of the recent geopolitical tensions involving the U.S. and Iran.

Tonnage overcapacity coupled with weak trading demand and weak OPEC output have seen tanker earnings dwindle over the recent period.

Moving into the first months of 2018, things are not looking up, as freight rates for both crude oil tankers and product tankers remain in the loss making teritorry.

On May 25, average earnings for VLCC, Suezmax and Aframax stood at USD 4,238; 18,073 and 17,930 per day respectively. In the product tanker sector average earnings were almost as miserable, ranging from USD 10,561 per day for a LR2 via USD 6,500 per day for a LR1 to USD 9,121 per day for  an MR, BIMCO’s data shows.

The shipowners association said that the oil market still has some way to go before being balanced, as global oil stocks still appear to be significantly above a “reasonable” target.

“BIMCO believes that the tanker industry will enjoy a noteworthy higher level of demand when global oil stocks are drawn further down. Moreover, a better oil market balance may also cause a return to an oil price contango. An oil price contango is likely to indicate an increased demand for tankers for floating storage,” the association explained.

On the supply side, owners’ appetite for newbuildings and second-hand purchases seems to have subsided.

As indicated by BIMCO’S Chief Analyst, Peter Sand, staying away from the shipyards is essential for reaping the benefit that two years of tepid fleet growth (2018 and 2019 at 2.8% and 2.6% respectively) could bring around in the form of higher freight rates.

On the demand side, stockpiles are still too high for normal tanker demand to resume. The market is further challenged by production cuts from Venezuela and Libya as well as more pipelines being built around the world, taking away the seaborne demand.

“The better earnings that should come out of a stronger demand scenario, may end up disappointing if there is large overcapacity,” Sand said.