Record VLCC Scrapping Insufficient to Ease Market Pressure

Recycling of record number of older very large crude carriers (VLCCs) during the first quarter of this year prompted by oversupply and OPEC cuts was unable to ease the sustained market pressure in the tanker market.

Namely, a total of 21 VLCCs were removed from the global fleet year to date, data from VesselsValue shows. The scrapping of veteran crude carrier giants already broke last year’s total of 13 ships mid-March with 16 VLCCs sent for demolition.

March was one of the busiest months for VLCC demolition, with a dozen of ships sent for scrap, according to VesselsValue. Only one VLCC is reported to have been removed from the fleet in April this year.

Nevertheless, rampant deliveries of the newbuilding tonnage are hindering the rebalancing of demand and supply as the global fleet also had to absorb 8 new VLCCs during the same period.

Furthermore, since the second quarter of 2017, around 20-30 VLCCs returned to the global trading fleet from logistical storage as the oil price structure has moved into backwardation, Belgian tanker giant Euronav said in its comment on the tanker market.

What is more, 49 VLCCs are due to join the world fleet by the end of the year further aggravating the market overcapacity and exposing tanker operators to stronger headwinds.

Demolition and newbuilding asset prices have been on the rise over the recent period, which is hoped to entice owners to refrain from ordering and retire some of their older ships.

“The large tanker fleet is at a level of maturity in terms of average fleet age not seen since the early 2000s, and will provide a supportive medium-term dynamic,” the company commented.

On the demand side, annual forecasts for crude have been upgraded with consensus growth for 2018 already at 1.6m bpd – the same level recorded in both 2016 and 2017, Euronav said.

In terms of the outlook, overall, demand for crude and expansion of ton miles remain positive for the tanker sector. The prospect for oil supply also remains supportive with a higher, and relatively stable, oil price driving new supply from Brazil, Russia and most notably U.S. shale.

“However, the rebalancing of the tanker market requires further affirmative action in reducing, primarily, older tonnage and continued restraint from contracting new buildings before the freight market can gain traction,” Euronav pointed out.

World Maritime News Staff

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