Viewpoint: Weak demand to limit US crude tanker rebound

Market: Crude oil, Freight
31/12/20

US crude tanker rates are expected to experience a limited recovery in 2021 because of a projected sluggish global oil demand rebound in the aftermath of the Covid-19 pandemic.

Tanker demand is highly related to global oil demand, which in 2021 is forecast to increase by 5.5mn b/d year over year to 97.2mn b/d — still below 2019's 101.1mn b/d, according to the IEA. While it may be an improvement over late 2020, crude tanker freight rates are expected to remain weak throughout 2021, according to VesselsValue analyst Olivia Watkins. She expects rates to return to pre-pandemic levels toward the end of 2022.

An increase in the size of the crude tanker fleet in 2021 will weigh on freight rates, although downward pressure will be limited because of a relatively low influx of scheduled newbuild deliveries and an expected increase in demolition activity.

Crude tanker supply, measured by total deadweight tonnage (dwt), is projected to grow by roughly 1.5pc in 2021, down from roughly 3.5pc growth this year and 6.2pc growth in 2019, according to shipping association Bimco.

Shipyards are projected to deliver 13mn dwt of crude tankers in 2021, compared with 19mn dwt this year and 29mn dwt in 2019, according to Bimco. Additionally, shipowners are forecast to scrap about 7mn dwt of crude tankers in 2021, compared with roughly 2mn dwt this year, according to Bimco.

Crude tanker scrapping activity has been limited in 2020 because of disruptions at demolition yards caused by the Covid-19 outbreak and because of strong demand for older tonnage for floating storage in the first half of the year. Roughly 2mn dwt of crude tankers have been scrapped in 2020, compared with roughly 3mn dwt in 2019 and roughly 21mn dwt in 2018, according to Allied Shipping Research.

US export outlook

Rebounding global crude oil demand in 2021 will primarily be met by Opec+ production increases and surging Libyan production, according to research firm Alphatanker. These production increases into an already saturated market will suppress the oil price enough to prevent a sizable rebound in US production, the research firm said, forecasting a 300,000 b/d year-over-year increase in 2021 to 11.4mn b/d. Because of this limited production increase, US crude exports are unlikely to rise much above current levels in 2021. US crude exports averaged 2.91mn b/d in October, down from 3.4mn b/d a year earlier.

Alphatanker forecasts US-China crude shipments will increase by 75pc year over year to roughly 1mn b/d, which will support demand for very large crude carriers (VLCCs) and Suezmaxes, the most active vessels class on the route. But this projected increase in China-bound shipments is dependent on the incoming administration of US president-elect Joe Biden maintaining the current US-China trade agreement, and it is unclear if this will be the case. An increase in US-China shipments would come at the expense of shipments to Europe, which would weigh on Aframax demand in the Americas because they are most active on US Gulf coast-Europe shipments.

Crude tanker rates in the US ended 2020 down by at least 50pc year over year across all vessel classes, according to Argus assessments. Rates have stagnated at depressed levels since August following the unwinding of global crude floating storage, which peaked on 27 June at roughly 214mn bl according to Vortexa, in the aftermath of April's oil price crash. Since peaking, global crude floating storage has fallen by 64pc to roughly 77mn bl, the lowest since 5 April.

By Michael Connolly

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