A shift of tectonic proportions could be underway in crude and LNG trading, bringing equally big shifts in ton-mile demand for tankers. In its latest weekly report, Allied Shipbroking said that “with the “Trade war” tensions between the US and China still ongoing and seemingly looking to be escalating over the past week, 4Q2018 prospects for the tanker market have taken a serious hit. At the end of last week China’s state oil major announced that its trading arm had suspended oil imports from the United States due to the ongoing trade dispute between the two countries. Although for the time being this seems to be a temporary halt, the indications are for a complete reversal of the trend we had been following since the start of the year.
According to George Lazaridis, Allied’s Head of Research & Valuations, “with China having been the largest buyer of U.S. oil and with its trading volume having been initially expected to triple this year, the overall expectation was for a strong net gain in tonne-miles to emerge during the course of the year and for this to help pull in a fair amount of the excess tonnage that is currently being witnessed in the crude oil tanker market. In the wake of these new developments however it looks as though we may never see this positive trend materialize, while given the overall geopolitical tensions also being noted between the US and Iran, it is no surprise that the International Energy Agency issued a warning last month that global spare oil production capacity was at risk of being “stretched to the limit”.
Lazaridis added that “all this can be seen as good news for OPEC, which has been trying to gain an increased share of the market over the past couple of months, while hoping to do so without underpinning oil prices by an excessive amount. However, when it comes to the global trade of crude oil and the overall demand for tanker tonnage, these factors play as a significant dampener and essentially prolong the excessive glut in tonnage supply that has been witnessed during the past couple of years. At the same time, this negative trend may well be reversed to some extent, as expectations are for OPEC members and Russia to further intensify efforts in increasing the production volumes in order to meet the increased gap that will be left in the wake of all this”.
Allied’s analyst noted that “in the short run such targets will be hard to meet, however given the upward pressure being seen in the price of crude, we should start to see a gradual increase develop in the overall production capacity held. Not that this will prove to be an easy feat to achieve given that OPECs largest supplier and the country with the biggest excess production capacity, namely Saudi Arabia, is already finding it difficult to keep up with its pledged production increases as pointed by the slightly softer figures it quoted for the month of July. Even with China switching over to OPEC sources to cover the volumes they would have imported from the United States, the tonne-mile effect would not be covered”.
“While all the above does paint a fairly bleak picture, it does still seem that the crude oil tanker market should show an overall improvement over the final months of the year. The considerably slower growth development noted in the fleet has helped alleviate conditions, while the continued ship recycling activity noted in this sector coupled by the much more manageably newbuilding delivery schedule should help bring back some sort of balance in the market. Taking on top of this the fact that new regulations have essential put a break on new orders and have clouded the operational viability of older tonnage and you have the potential for a faster paced market correction in the making. As hopeful as this last point may sound, it does not take away from the fact that things looked to be much brighter at the start of the year compared to where we find ourselves today”, Lazaridis concluded.
Source: Hellenic Shipping News.