BIMCO Predicts More Pain for Crude Tanker Sector
In a research note released Tuesday, BIMCO laid out a dire depiction of the market for dirty tankers: "absolutely horrible," with earnings at the lowest level on record and little chance of improvement until next year.
According to BIMCO and Clarksons, VLCCs are earning just $6,000 per day, Suezmaxes about $11,000 per day and Aframaxes about $9,500 per day - all well below breakeven levels. Relief may not be coming anytime soon, as BIMCO expects that crude tanker market will not return to a balanced, profitable state until the second half of 2019.
Luckily, the low rates are not being driven lower by new deliveries. "The total crude oil tanker fleet hasn’t grown at all in 2018. In fact, the VLCC and Aframax fleets specifically haven’t been growing over the past 12 months," said BIMCO lead analyst Peter Sand. "Overall, the freight market is oversupplied. The key to higher earnings lies within a very low fleet growth and a return to normalised demand level. The sooner the better – but patience is required."
Scrapping has been a leading factor in restraining fleet growth so far. BIMCO says that "massive demolition activity" in the first half of the year - some 13 million dwt, the equivalent of roughly 40 VLCCs - has helped keep excess capacity in check. Continued control of the supply side will be needed if profitability is to be restored, as the demand outlook is uncertain, BIMCO predicted.
BIMCO also pointed to the key role of floating storage, a practice that is unique to the tanker market. When commodity prices favor later delivery dates (a contango, where the futures price exceeds the expected spot price), traders may keep cargoes on board anchored tankers, removing some of the fleet from the market and improving utilization and day rates.
"How big a task the supply side is faced with will depend very much on the future demand for floating storage capacity. A big juicy oil price contango in 2019 would have a major positive impact on freight rate levels," Sands said.