MSI: OPEC’s cut is deepest for VLCC, Suezmax markets

Maritime Activity Reports, Inc.

February 21, 2017

 Maritime Strategies International (MSI), a leading independent research and consultancy has forecast a testing time for the crude tanker market over the next six months – and perhaps longer if OPEC is successful in extending production cuts beyond the first half of 2017.

In its latest Tanker Freight Forecaster* MSI notes that the VLCC and Suezmax markets moved unequivocally downwards in January, with spot rates sliding rapidly from a seasonally strong December. Pressure has persisted in these sectors in February leaving the crude tanker spot market under increasing strain.

More mixed dynamics and volatile conditions characterised the Aframax and product tanker sectors in January, but in both segments resistance to the current downturn in spot rates has been limited and in February conditions across the tanker market sector are poor and deteriorating.

“OPEC is one clear culprit behind the downturn, with compliance to committed cuts estimated at close to 90% so far in January, another is the huge amount of refinery maintenance scheduled to occur in the near-term,” says MSI Senior Analyst Tim Smith. “We are likely to see a peak of close to 6m bpd of capacity offline around the end of Q1 and start of Q2, implying that overall crude import demand will be weak over the next three months exacerbating the effect of the OPEC cuts.”

OPEC's next test will be resisting output increases beyond this period of refinery maintenance when underlying demand rebounds. The second half of Q2 is likely to be pivotal for the tanker sector, but with some OPEC members already calling for even deeper cuts, MSI doesn’t foresee major upside in the near-term.

This view is being reinforced by high rates of fleet growth; 12 VLCCs are estimated to have hit the water in January, increasing fleet capacity by 1.6% in a single month. Crude carrier deliveries will continue to be frontloaded in 2017 as a surge in Suezmax deliveries hits the water over the next three months, with around 20-25 deliveries expected.

“With a combination of OPEC cuts, low refinery utilisation and continued influx of new tonnage, the fundamentals for the crude market do not look constructive over the six-month horizon,” adds Smith. “We expect spot market conditions to remain weak whilst VLCC 1 Yr T/C rates have some room to run before we expect them bottom near Q3, close to $25,000/day.”

Suezmax spot earnings have followed the broader market trend at the start of 2017, moving down sharply from December levels on a monthly average basis in January while the Aframax segment is expected to follow a similar pattern to its larger counterparts over the first half of 2017.
 

Maritime Reporter Magazine Cover Nov 2019 - Workboat Edition

Maritime Reporter and Engineering News’ first edition was published in New York City in 1883 and became our flagship publication in 1939. It is the world’s largest audited circulation magazine serving the global maritime industry, delivering more insightful editorial and news to more industry decision makers than any other source.

Subscribe
Maritime Reporter E-News subscription

Maritime Reporter E-News is the maritime industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week

Subscribe for Maritime Reporter E-News