2016 VLCC Earnings Will Surpass 2014 -BIMCO
Lower growth rates for refinery throughput and drawdowns on swollen oil stocks has impacted the seaborne tanker market negatively. BIMCO expected this to happen.
BIMCO has reduced its forecast for crude oil tanker demolition in 2016: from 5 million DWT to 3 million DWT. By mid-August, only 0.76 million DWT of crude oil tanker capacity proved to be in such poor condition that it could no longer be traded in the strong freight market.
Limited fleet growth is key to keeping freight rates at a profitable level. This lack of demolition means the supply of new tonnage weighed down the market, making the shift to a fundamental imbalance quicker and harder felt. Especially as the growth rate on the demand side is coming down from last year’s peak.
In the first seven months of 2016, China’s refined oil product exports increased in total by 51.7% or 366,273 barrels per day (bpd). July 2016 saw a record-breaking level of 1,027,933 bpd.
The five major importing countries of Chinese refined oil products had a combined market share of 59.5% between January 2014 till July 2016:
• Hong Kong with a growth rate of 20.9% or 147,759 bpd on a monthly average,
• Singapore with 18.3% or 129,129 bpd,
• Panama with 9.3% or 65,930 bpd,
• the Republic of Korea with 5.7% or 40,581 bpd
• Vietnam with 5.3% or 37,610 bpd.
The imports made by “Other" trading partners increased in total by 71.3% or 1,173,933 bpd in the first seven months of 2016, in comparison to the previous year’s period.
Growing export volumes from China seems to have a positive effect on the tanker market.
China is expected to continue growing its crude oil imports for the rest of the year, but at a slightly lower growth rate. It’s latest Strategic Petroleum Reserve appears to be filled now. Crude oil prices are not as low as they have been and demand growth from the independent teapot refineries now tends to provide shorter hauls than before - and in comparison to the national refiners who prefer crude oil from West Africa and the Arabian Gulf.
Imports of crude oil into US and India are expected to grow over the rest of the year, whereas European imports seem to be on par with 2015.
In spite of a decisive reduction in freight market rates, BIMCO expects that average VLCC earnings in 2016 will still sit above those of 2014. But the foreseen market changes have proven to be slightly harder than expected with a negative impact on freight rates in all other oil tanker segments.
BIMCO now sees average earnings for all other oil tanker segments (Ex VLCC) below those of 2014. Currently, average earnings year to date in 2016 are slightly above the full year average of 2014.
