Tanker Market Faces Protectionist Threat
After October’s improvements to VLCC spot rates and time charter rates in other sectors, OPEC strategy and the protectionist threat loom over the tanker market
Consultancy Maritime Strategies International (MSI) has forecast a limited winter upturn for the crude tanker market but has cautioned on short and medium term risks.
October saw only the VLCC sector show any sizable movement, with spot earnings on TD3 (the key Middle East Gulf-Japan VLCC route) increasing sharply to around $40,000/day.
Spot activity in other segments mostly moved sideways, although one year time charter estimates have seen some improvement in the sector suggesting an improvement in sentiment.
As a result, expectations of a relatively muted winter upturn remain intact, but policy decisions are looming large, according to MSI Senior Analyst Tim Smith.
“Donald Trump's victory in the U.S. presidential elections isn't likely to have a huge effect on the market in the near-term unless it destabilizes the U.S. economy. In the longer-term there is clear risk to shipping should protectionist policies be imposed, whilst domestic energy production in the U.S. could be further encouraged as red tape is removed. More immediately on the agenda for the tanker market is the OPEC meeting at the end of November.”
MSI believes Saudi Arabia will need to provide leadership if an OPEC production cap is to be agreed. Iraq is still pumping at high levels, and regardless of the outcome of the meeting, MSI does not expect major changes to output over the next three months.
For the fourth quarter VLCC upswing to be maintained, the market will need to see substantial draw from Asian demand. A renewed surge in Chinese buying - which may be seen when November's numbers become available - implies further constructive conditions, but having attained levels close to its expected forecasts and given pressure from fleet growth, any major gains are likely to be limited and brief.
An improvement in the VLCC market should also be viewed as a positive lead indicator for Suezmax spot earnings if it can be sustained. Suezmax and Aframax freight markets have lagged VLCCs in winter upturns in recent years, but encouragingly Aframax spot markets have seen some sharp upward movements in the first half of November.
The MSI Suezmax spot rate forecast sees modest improvement across the three-month horizon, predicated on seasonal demand. The remainder of 2016 is likely to see substantial upside, which should also pull up time charter/C rates. By March though spot market earnings are expected to have returned below $20,000/day.