Pressure Mounts

July 18, 2017

VLCC voyages from the Middle East to North America continue to decline this year, falling below 2016 levels and reducing TD1 earnings as pressure mounts from both sides of tanker fundamentals. On the supply side, OPEC’s efforts to rebalance global oil benchmarks has led to a reduction in Middle East crude volumes to the West as producers battle to retain market share in the East. From the demand side, rising crude supply in North America due to steady production gains in Canada and the US has reduced the reliance on imports from the Middle East. Vessels along this route have suffered from considerably lower earnings when compared to the remaining benchmark VLCC trades as TCE’s have averaged around US $4,294/day year-to-date, after returning to negative territory this month.

In our five year Tanker Market Outlook, issued in January 2017, we indicated our expectation of lower tanker demand along this trade through 2017 and currently remain steadfast in this view, forecasting ton-mile declines of 10.8% on a year-on-year basis. For the near-term, we see continued weakness stemming from a reduction in Saudi Arabian crude exports to the US, which, according to market reports, are expected to fall below 800,000 b/d in August. In our view, this will lead to a buildup of tonnage in the Arabian Gulf and this trade is likely to average at WS 23 in August, which at today’s bunker prices would return a TCE of US -$2,831/day.

Pressure Mounts

July 18, 2017

Comments