Euronav NV CEO Paddy Rodgers said that the company's financial results for Q1 was a confirmation of our thesis: short term challenges but a positive medium structure building for the tanker sector.
On the positive side demand for crude oil remains
robust. The recently adjusted IEA forecast for 2017 at 1.3 million bpd growth still drives a requirement equivalent to an additional 35-45 VLCCs of shipping demand for 2017 alone depending on sourcing as most demand growth is from the Far East
and therefore will need to be shipped.
Ton miles retains an important dynamism within large crude tanker markets and the firs quarter saw further establishment of a key trend, namely USA exports, Euronav said.
Asset prices continue to adjust to the new structure of restricted financing. 2016 saw average tanker values fall by approximately 25% - a process which appears to have stabilized during the first quarter of 2017.
Euronav said that the biggest challenge facing the tanker market at present is the concentration of tanker deliveries. The first quarter saw 27 VLCC equivalents delivered to the global fleet (based on VLCC and Suezmax deliveries only) a number which will be repeated during the second quarter.
Absorption of these new, un-vetted vessels will occur during a seasonally weak period and will provide a sustained challenge for tanker operators over the summer months. That said the second quarter of 2017 represents the peak concentration period of new build capacity impacting the market.
Less positive however, is the return of VLCC newbuilding orders in the first quarter. This implies a lower for longer tanker freight market given the already high concentration of new tanker capacity due for delivery primarily in 2017 but also in 2018. This is likely to generate challenging freight rate conditions during the remainder of 2017.
Euronav remains confident about the medium term prospects for our business and the tanker sector generally. With the lowest leverage in the large tanker sector and access to over USD 620 million of liquidity Euronav is well positioned to navigate the cycle - to be strategically opportunistic whilst remaining exposed to any potential upside from an improved freight rate environment.