Five reasons for tankers owners to be cheerful

According to Seatrade Maritime News, New York broker Poten & Partners has identified five reasons why tanker owners should be cheerful this year.

The firm’s projections come with a health warning. Nobody forecast Covid-19 or Russia’s invasion of Ukraine – developments in 2023 are equally uncertain. The year ahead could be a prosperous one, but it could also be a bumpy ride, Poten warns.

However, if the broker’s views on key tanker market drivers prove to be correct, it’s good news for tanker owners.

The first plus point is China. The country’s zero-Covid policy constrained growth and led to 400,000 barrels per day (bpd) decline oil demand in 2022. The International Energy Agency (IEA) now expects demand to climb by 800,000 bpd this year – to 15.8 million bpd. Almost all of the extra volume will be shipped by sea, Poten believes, mostly on VLCCs, which are likely to command premiums over smaller tankers.

Second - Owners are likely to focus on new buildings as the volume of secondhand deals slows down. After tankers were crowded out by container ships and LNG carriers, strong earnings and a small orderbook is likely to rekindle interest in new ships.

Third - Product tankers are set to benefit most from the outcomes of the European Union’s (EU) February 05, 2023 ban on Russian refined products.

Long-haul movements (exports from Russia and imports into Europe) will drive ton-mile demand, notably for larger LR1s and LR2s to and from Asia.

MRs will get a boost from higher transatlantic volumes. Product carriers are therefore likely to outperform crude tankers.

Fourth - US oil exports could well set new records. The 2022 export figure of 3.5 million barrel per day – itself a record – was supported by major releases from the US Strategic Petroleum Reserve.

More of these are unlikely this year, Poten says, but oil production will rise by about 500,000 b/d, according to the IEA, and higher US exports will benefit all tanker segments.

Fifth and finally - Although Russia’s war diverted attention away from new IMO and EU environmental regulations, a new focus on carbon intensity means that many owners will need to adopt measures to remain compliant provided the new regulations are enforced, Poten believes.

The steady tightening of the IMO’s carbon intensity indicator (CII) framework will mean that today’s rules become stricter over time and all shipping sectors, tankers included, will be affected.  

Emerging massive stimulus for oil tankers

Tankers generally, but VLCCs in particular, will benefit spectacularly as Europe’s energy trades transform and the ban on Russian crude oil imports comes into effect in December 2022.

According to New York broker, Poten & Partners, the ton-mile demand generated by European imports rose by 32% as a result of reducing Russian imports to 2.0 million barrels per day (bpd) from 2.5 million bpd.

“Finding alternative sources of supply for another 2.0 million bpd will provide another massive stimulus to ton-mile demand and tanker rates,” the broker declared.

Over the five-year period from January 2017 to January 2022, Europe imported at an average of 2.7 million bpd of Russian crude oil by sea, 26% of the seaborne total but only 14% in terms of ton-miles.

Most of the oil imported into Europe was carried on smaller tankers running short-haul trades across the Baltic and Black Seas. Between March and August, however, crude oil imported by sea from Russia fell to 19% and, in ton-mile terms, shed two percentage points to 12%.

Since the start of the war, Europe has pivoted away from Russian crude, replacing supplies with imports from the US Gulf, South America (Brazil, Guyana), West Africa, and the Middle East. Imports from the US Gulf have doubled from 6% to 12%. This has led to a significant increase in ton-mile demand, and is a welcome shot in the arm for the recently weak large tanker sector.

The broker also noted that Russia will look for other customers for its displaced two million barrels of crude, most likely in Asia, China and India in particular. This will provide a further boost for ton-mile demand. “The tanker market is in for a wild ride,” Poten predicted.

MOL orders first VLCC

Dalian Cosco KHI Ship Engineering has announced a contract to build two dual-fuel VLCCs for Mitsui O.S.K Lines (MOL).

This is the first LNG-fueled VLCC ordered from a Japanese tanker operator, and the first VLCC newbuild order from global market since July last year, said Dalian Cosco KHI Ship Engineering. 

According to brokers Poten & Partners in a recent report the last VLCC newbuilding was ordered in June 2021, while there have been no contracts for Suezmaxes since July last year. Tanker markets have endured a torrid couple of years which has seen owners refrain from ordering new tonnage.

This VLCC pair for MOL, measuring 339.5 metres in length and 60 metres breadth, meeting the Phase 3 regulation of EEDI, will be able to reduce 25-30% carbon emission as compared to the traditional vessel. 

The newbuild VLCCs are scheduled for delivery from 2025 through 2026.