Tankers: The rate of newbuilding deliveries will determine the 2018 course of things in the market


Ship owners active in the tanker market have entered 2018 in a numb state, as they have been looking for some positive news, after what proved to be a more than challenging year. In its latest weekly report, shipbroker Gibson said that “2017 was always expected to be a challenging year, however, for the crude sector at least, the first half of the year generated reasonable earnings. In contrast, product tankers suffered heavily during the first six months, but did at least witness increased volatility later in the year. 2018 looks set to be another painful period for tanker owners, with a continued wave of new tonnage and potentially challenging demand conditions”.

According to Gibson, “on the supply side, the key issue is of course the weight of deliveries expected for 2018. This year 40 million dwt of crude and product tankers (over 25,000 dwt) are due for delivery, compared to the 35.5 million dwt delivered in 2017, potentially making 2018 the busiest delivery year since 2010. Delays are, however, expected to be a factor in reducing the volume of tonnage entering the market this year. Interestingly in 2017, slippage (taking account of the scheduled number of deliveries vs. actual deliveries) across the crude sector fell relative to 2016. Actual deliveries for VLCCs fell just 11% below the scheduled number, whilst Suezmax slippage was somewhat higher at 21%. However, delivery delays in the product tanker sector, which had a more challenging year relative to the crude market, ran significantly higher. In the crossover Aframax/LR2 sector deliveries fell 27% below the scheduled number, whilst LR1 slippage rose to 38%. MRs, which didn’t fare as badly in the spot market as the larger product carriers, saw slippage of just over 28%. Given the anticipated fundamentals for 2018, delivery delays are expected to remain a feature, and for the crude sector in particular, and could increase relative to 2017. However, the same fundamentals are likely to encourage scrapping activity; which, when coupled with slippage, could help offset some of the supply growth for 2018”.

The shipbroker added that “supply is of course just one side of the equation. In terms of oil demand the IEA forecasts positive growth of 1.3 million b/d; slower than recent years but above long-term averages. However, the consensus is that OPEC will continue to limit output until the end of the year, giving little opportunity for export growth from the Middle East and perhaps West Africa. The focus is therefore outside OPEC. The US will of course remain one to watch over the year with the EIA expecting crude production to average 775,000 b/d higher in 2018, much of which expected to head for export. Elsewhere, output growth could be seen from Brazil, Kazakhstan and Libya. However, the threat of lower production exists elsewhere. Could Venezuela be 2018’s wildcard event?”.

Meanwhile, according to Gibson, “for the clean market, there is little reason to expect 2018 to be any worse than last year. In the West, the year has at least started on a better footing, even if weather is the primary factor. More fundamentally, oil products demand looks good. Refined product stocks, which had become a key barrier to arbitrage trade, have come down significantly, particularly in Europe, and to a lesser extent in the key US Atlantic Coast region, which should improve fundamentals in the Atlantic. Higher diesel exports are expected from the Baltic, whilst demand from Latin America and West Africa looks set to remain a key theme. The picture is a little more mixed in the East. In the Middle East, there are few refining developments set for 2018, whilst repairs at Ruwais are expected to last into 2019. In the Far East, Chinese product exports could rise once again, following the issuance of higher export quotas in the first quarter, supporting regional tanker demand. However, it remains to be seen whether these developments will be enough to make a real difference. Will the wait go on until 2019?”, concluded the shipbroker.