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McQuilling Services' Outlook Methodology

Jan. 17, 2017

Over the past 20 forecasting cycles, the primary objective of producing the Tanker Market Outlook has been to develop a logical thought progression based on demand and supply fundamentals for our clients’ use.  Our industry models are intended to explain a significant portion of the behavior of tanker spot freight market levels and to project them into the future.  While the concepts remain quite intuitive, the math has become increasingly complex. 

McQuilling Services uses a multi-dimensional approach for producing forecasts which combines analysis with experience and observation.  The resulting forecasts are based on a combination of results from analytical regression models and experiential observations.  Our Outlook is synthesized from the following five components: 

1.  Quantitative Modeling
2.  Experiential Adjustments
3.  Tonnage Supply and & Demand Bias
4.  Seasonality
5.  Previous Outlook and Market Performance

The analytical process is based on many assumptions including economic growth rates, oil prices, oil demand and supply, regional product balances, refinery utilization, fleet additions and exit velocities, just to name a few.  We used regression modeling to evaluate the utility of many different possible explanatory variables in estimating spot market rate behavior in each sector.

We have developed regression models from historical datasets from 2000 and used them in the development of preliminary rate forecasts for individual trades.  For the VLCC trades, TD3, TD1 and TD15, we constructed a multivariate regression analysis with ton-miles and vessel supply as the two independent variables, achieving a 64%, 70% and 69% correlation of freight rates to this regression construct.  For the Caribbean/Singapore trade, we used TD15 spot rates to estimate corresponding lumpsum freight. 

We then used VLCC rates to estimate Suezmax, Aframax (dirty) and Panamax (dirty) freight rates in the majority of the cases, based on an R-Squared range of 73-95%.  For the MR2 sector, we derived a 61% correlation on TC2 when implementing multivariate regression analysis, including positioned MR2 tankers (TC2 fixing window: 9 days) to the UKC region, along with TC2 regional ton-mile demand.  We found that the balance of the clean trades were influenced strongly by TC2 rates as Northern Europe accounts for 20% of total ton-mile demand when evaluated from both load or discharge region. 

The 2017-2021 Tanker Market Outlook will be available before the end of January.