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2015-2019 Tanker Market Outlook Now Available

Feb. 5, 2015

We project demand for CPP tankers to increase by 3.1% annualized through 2019 with LR1 and MR2  demand growing by 3.8% and 3.3%, respectively.  This expansion will be at the expense of the MR1 sector, where we would expect demand to contract by 2.4% in 2019 against 2015 levels.  The LR2 sector is envisioned to remain flat in 2015 as compared to 2014.  Despite expectations that the top 10 LR2 trades will expand, competition from LR1s will assuage overall LR2 growth.

As we enter the current forecast period, capacity additions that have been pressuring tanker market fundamentals have slowed, especially for larger tankers that transport crude oil and residual fuels.  This has been reflected in recent rate strength across vessel classes, which is expected to continue in 2015.  Floating storage will be an ancillary factor that tempers supply in 2015, which may have a tightening effect on Suezmaxes if enough VLCC supply is taken out of the market.  Robust MR2 orders continued in 2014 and deliveries of this tanker class are expected to remain elevated through 2016.  This reinforces our conviction that an oversupply of MR2s will pressure clean tanker rates, especially in the latter half of the forecast period. 

Generally speaking, we expect 2015 rates to remain strong as positive sentiment has gripped the market, followed by a softening in 2016 as a large number of deliveries join the fleet.  The balance of the forecast will be influenced by developments from macro-economic factors including European quantitative easing and a continued recovery in the U.S.  

Tanker prices are projected to rise this year with the greatest increase occurring in the 10-year old crude tankers.  In this category, VLCCs are expected to rise 22% while Suezmax and Aframax 10-year olds are forecast to rise by 18% and 26%, respectively.  Prices for 10-year old clean tankers will also increase with LR2 and LR1 tankers rising by less than 5%, while MR2s are projected to increase by 12%. 

From our investment analysis, we concluded that 10-YR old tankers, particularly for the crude sector would return owners or investors the highest IRRs.  We estimate that a 10-YR old VLCC would return investors 45% if acquired at January 2015 levels and held to maturity.  Suezmax and Aframax 10-YR old vessels would return 41% and 40%, respectively.  The tankers which would return the lowest IRR are the 5-YR old LR2 at 5.5%.  For newbuildings, our analysis suggests that an LR1 would return 9.1%, above the 8.8% return expected for an LR2.

Previous Performance

Over the last 17 forecasting cycles, McQuilling Services has produced forecasts within +/-15% of actual levels 70% of the time (12 cycles) and +/-25% of actual market levels 82% of the time (14 cycles).