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Crude tanker market weighs short term impacts and long term threats

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MSI logoAfter October’s improvements to VLCC spot rates and TC rates in other sectors, OPEC strategy and the protectionist threat loom over the market

London, November 22, 2016. Maritime Strategies International (MSI), a leading independent research and consultancy firm, has forecast a limited winter upturn for the crude tanker market but has cautioned on short and medium term risks.

Its latest Tanker Freight Forecaster* notes that October saw only the VLCC sector show any sizable movement, with spot earnings on TD3 increasing sharply to around $40,000/day. Spot activity in other segments mostly moved sideways, although one year T/C 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 US presidential elections isn’t likely to have a huge effect on the market in the near-term unless it destabilises the US economy. In the longer-term there is clear risk to shipping should protectionist policies be imposed, whilst domestic energy production in the US 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 Q4 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 and through the remainder of 2016 is likely to see substantial upside, which should also pull up T/C rates. By March though spot market earnings are expected to have returned below $20,000/day.

*To receive the MSI Freight Forecaster, please contact MSI: https://msiltd.com/default.aspx

About Maritime Strategies International
Since its inception in 1986, Maritime Strategies International (MSI) has established itself as one of the shipping industry’s foremost independent research and consultancy firms. Our success is built on a strong focus on maritime economics and econometric modelling. We provide a comprehensive range of advisory services, including forward valuations market forecasts, reports and commercial consultancy services for all shipping sectors. MSI asset price forecasts are used by ship finance providers holding 40% of all shipping bank debt and we provide analytical and methodological support to give the context and credence to our results.

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