Jan. 22, 2021
As with every year, we are preparing to publish our annual Tanker Market Outlook (TMO), a comprehensive report that includes deep analysis of tanker market fundamentals as well as our forecasts regarding freight rates, tanker demand and supply, as well as asset prices and time charter rates . For this week’s highlight, we will examine some of the key themes in the crude tanker segment from the upcoming report.
Global oil demand it is estimated to have fallen by 8.8 million b/d in 2020, thanks for the most part to the COVID-19 pandemic and the destruction of demand it caused. For 2021 we expect to see a recovery of about 6.6 million b/d, attributed to the expectation of the pandemic coming under control, especially after the production and distribution of vaccines. It is worth noting, however, that the anticipated pace of the recovery may be slow and for that reason we project that it will not surpass 2019 levels until well into our forecast period. The situation is even more concerning for crude demand, which certainly has some unique dynamics as biofuels increase their composition of final petroleum products as part of broader decarbonization efforts worldwide.
The deteriorating balance of demand and supply, measured by McQuilling through our proprietary methodology has behaved as expected in predicting the pressure on tanker earnings, which are currently at their lowest levels over the past decade (Figure 1). Initial findings from our utilization forecasts suggest that this will be the case for almost the entire 2021, due to pressure on transportation demand from inventory releases, which will also act as supply side pressure as vessels rejoin the trading fleet. Furthermore, and as alluded to above, our view on crude demand in 2021 projects an even distribution of the demand between West and East of Suez refinery centers, with the Middle East contributing close to 1.0 million b/d of the overall growth, while North America is set to contribute approximately 1.4 million b/d. While these are positive developments, we find the impact on tanker demand to be marginal on the crude tanker side, with more positive results showing up in the clean tanker segments.
We look forward to publishing the 2021-2025 Tanker Market Outlook next week, revealing our long-term forecasts in the process.
Figure 1 – Historical VLCC Earnings
Source: McQuilling Services