July 16, 2021
The discussion on the tanker markets is gaining “heat” as we move towards the second half of the year with some analysts expecting a quick, spectacular recovery, while others including ourselves, observing a more tempered outlook. A recent refresh of our supply/demand models for the short-term continues to project a healthy demand-side recovery from increasing crude length in key regions (Middle East, West Africa); however, the existing overhang and continued rise in vessel supply, may effectively wipe out the demand gains, should owners continue to forego vessel retirements.
To visualize these fundamental developments, we graphed our expected increase in VLCC demand equivalents from a June baseline and matched these against two potential supply scenarios through the end of 2021. The 1st supply scenario (McQuilling) uses our projections of 3 deletions per month, with the 2nd (Low Deletions) scenario projecting just 1 deletion per month. Both scenarios assume deliveries will continue and modifiers from drydocking or floating storage are also considered.
What we found is that with the added OPEC+ production and a continuous economic recovery from the COVID-19 pandemic, the conditions for tighter VLCC utilization exist as we move into Q4; however, the Q3 period is unlikely to show any material signs of improvement for VLCC earnings. Additionally, we note that using the McQuilling supply scenario, the net gain over the second half is approximately 10 VLCCs; a good start to a recovery, but unlikely to support earnings above US $20,000/day (ECO w/o Scrubber). Finally, the scenario where deletions reflect closer to our Low Deletions scenario, we would not be surprised to see VLCC earnings in December mirror the current environment.
Figure 1 – Different VLCC Demand/Supply Scenarios
Source: JBC Energy, McQuilling Services