Jan. 25, 2017
New York – January 25, 2017 – McQuilling Services is pleased to announce the release of its 20th Anniversary Edition 2017-2021 Tanker Market Outlook. This 200-page report provides a five-year spot and time charter equivalent (TCE) outlook for eight vessel classes across 19 benchmark tanker trades, plus two triangulated trades. Also included in the report is a robust five-year asset price outlook as well as a one and three-year time charter forecast through 2021.
With 20 years of tanker rate forecasting expertise, McQuilling Services is a leader in the industry and continues to support a variety of stakeholders in the energy, maritime and financial services industries with its annual Tanker Market Outlook.
The McQuilling Services rate forecast is based on the evaluation of historical and projected tonnage supply and demand fundamentals in the tanker market within the current and projected global economic environment, including oil supply and demand expectations. The forecasting process begins with the development of quantitative models, which are used to measure the correlation between historical freight rates and tanker supply and demand. This fundamental approach has proven to be reasonably predictive over the past 20 years. However, the forecasting process evolves past the modeling stage when the quantitative results are balanced with experiential knowledge and reasonable market assessments.
Key findings from 2016
Between 2015 and 2016, global ton-mile demand to transport crude and residual fuels increased by 4.6%, supported by a 5.6% increase in VLCCs (which accounted for 63% of the total demand for dirty tankers). Suezmax demand accounted for 23% of all DPP demand in 2016, 1% lower than 2015 due to underutilization in West Africa.
We recorded an advancement in the major Middle East > Far East crude oil trade in 2016 by about 5.5% from 2015 levels, while over this year’s five-year forecast, we believe that increasing domestic demand for Middle Eastern crude oil by an expanding regional refining sector may decelerate demand growth to an annualized growth rate of 1.2%.
Clean product ton-mile demand grew by 7.1% in 2016 versus year ago levels. A large supply of refined products in the Middle East and India outpaced demand growth, increasing product exports. Significant volumes of gasoil were witnessed on the Middle East > Northern Europe regional trade, contributing to a 27% rise in CPP ton-mile demand on the route.
Our trade flow analysis indicates that US Gulf CPP exports averaged 7.96 million monthly tons in 2016, up about 0.6% from 2015 levels; however, more interesting is the 4% corresponding increase in ton-mile demand. Ton-mile demand on the US Gulf > East Coast South America trade was up 63% in 2016 due to lower product supply in Brazil as domestic refinery intake declined by approximately 135,000 b/d.
Actual vessel deliveries in 2016 totaled 265 vessels. This was 78 below our expectation given at the start of the year. This represents a slippage rate of approximately 22.7% in deliveries from our original forecast. The slippage can be attributed to yard delays and cancellations from the large orderbooks in previous years, owners altering ship specifications during the construction phase and financing constraints.
Only 31 vessels were removed from the trading fleet in 2016 amid a relatively strong earnings environment and declining steel prices.
Throughout the year, we recorded a total of 134 tankers placed on order, of which 66 were DPP vessels. This is the lowest level of DPP orders since 2012 when 47 vessels were placed on order. Clean product tanker orders numbered 60 in 2016, while just eight chemical MR tankers were ordered, the second lowest level on record.
Global economic growth is expected at 3.4% in 2017 as mature economies are forecasted to grow 1.8%, while emerging nations are on track to advance 4.6% as commodity-producing countries (Russia, Brazil) exit recession.
The IEA projects that world oil demand will grow by 1.32 million b/d in 2017 with a majority of the demand growth expected from non-OECD countries. OECD demand growth is expected to stagnate in 2017, while non-OECD demand will rise to just over 51 million b/d.
Crude and residual fuel ton-mile demand is projected to increase by about 0.7% on an annual basis throughout the forecast period. We project 2017 demand growth of 0.3% amid lower oil output from participants in the OPEC and non-OPEC production cut agreement and a pick-up in global inventory draws. Meanwhile, clean product ton-mile demand is expected to experience a marginal increase of 0.22% in 2017.
On the basis of supply side risks, we expect 2017 to be a down year for owners of all tanker classes with VLCCs averaging around US $27,000/day and about US $12,500/day for MR2s on a triangulated basis. However, earnings in 2018 are expected to improve slightly across all tanker segments, given a decelerating supply outlook and increasing oil supply.
MR earnings on a round-trip basis are expected to be mixed with TC2 TCEs averaging US $8,400/day in 2017, while the USG/Carib round trip voyage is estimate at US $12,400/day for 2017. TC14 earnings are forecasted to be the lowest of the trades we track at US $4,300/day; however, on the triangulated basis (TC2/TC14) owners will earn around US $12,400/day in 2017 and increase to US $14,200/day by 2019.
The relationship between time charter rates and spot market earnings was strong in our analysis and formed the foundation for our time charter forecasts. For VLCCs, we project 1-year and 3-year time charter rates to average US $30,000/day and US $32,000/day in 2017, respectively.
Our 2017 price forecast for the 5-year old crude tanker sectors sees VLCC values averaging US $59.0 million, a 14% decrease from the 2016 average price of US $68.8 million and a 1.6% decrease from current levels. Modern Suezmax tankers are projected to demand US $38.0 million in 2017; however, by 2021 we project the values of these tankers to reach US $51.0 million amid a pickup in earnings. Panamaxes values are likely to fall to US $20.0 million in 2017, with further depreciation expected to 2021.
Clean tankers of this age group (5-Year) are expected to see lower prices relative to their 2016 averages. For the LR2, we forecast a 2017 average price of US $30.5 million, a 33.0% decrease from the average price recorded in 2016, while the LR1 sector is expected to decline a more modest 20.0% to US $25.9 million. The MR2 tanker is likely to depreciate 21.8% to US $20.5 million; however, a recovery to 2016 levels is expected to occur in the medium term.
What’s New in 2017?
In the 2017-2021 Tanker Market Outlook we have incorporated a variety of new features to provide our clients with a more robust view of global trade flows and major tanker trades:
- Incorporated the use of “big data” by utilizing remotely sensed vessel position data to track real-time demand, fleet deployment and utilization across the various tanker sectors
- Expanded our five-year forecast for freight rates and TCEs by one additional trade (USG/Carib) for MR tankers (38,000 mt), totaling 19
- Increased the capture and scrutiny of non-OECD country bilateral trade through continued collaboration with clients and other parties, as well as the use of industry datasets, enabling us to exceed 95% coverage of global trade flows.
- Developed bunker price forecasts on a regional basis to provide clients with the most accurate trade-specific TCE earnings
- Through the use of enhanced database techniques, we streamlined data distillation processes for tanker supply and demand development, reducing manual interventions and data inconsistencies and thereby increasing data integrity.