The booming VLCC tanker market has started to be reflected on the companies’ earnings, as evidenced by the rather impressive first quarter results by both Euronav and DHT over the course of the past week. Both companies also said they expected that the strong market will continue to perform as such, during the second quarter of the year as well. What’s even best is that this state of the market, is not a result of one or two factors, but a combination of a lot, which further solidifies the market’s positive prospects moving forward.
According to the latest weekly report from analyst Poten & Partners, earnings for 2015 to date on the benchmark AG-East route are significantly higher than during the same period in previous years and most market participants expect rates to remain solid throughout the year, even though there will be seasonal fluctuations. Poten noted that “despite earlier expectations to the contrary, world oil demand growth has been relatively strong so far this year. This is in part due to unexpected factors, such as a rebound in European product demand as well as increased growth in India and higher demand for transport fuels in the US. Lower oil prices have also contributed to increasing oil demand”, Poten noted.
To further note that, the International Energy Agency recently raised its forecast of global oil demand for 2015 by 90 kb/d to 93.6 mb/d, a gain of 1.1 mb/d relative to 2014. Meanwhile, the fact that oil prices have retreated so much, oil supply hasn’t abated, growing by 3.5 million barrels/day on an annual basis, both from OPEC and non-OPEC members. In fact, OPEC members haven’t shown any signs of lowering their production, rising by 890,000 barrels/day during March, mainly as a result of higher production in Saudi Arabia, Iraq and Libya, with total production exceeding 31 million barrels/day. In fact, as Poten noted in its report, that it was the highest monthly increase in OPEC’s oil production during the past four years. Of course, at the same time, US crude oil stocks keep on rising week in – week out.
Another boosting factor has come from the supply side, as fleet growth has been limited. According to Poten’s report, six VLCCs have been delivered in the year to date, with an additional 28 newbuildings scheduled to hit the water until the end of the year. Of course, deliveries are expected to increase significantly during 2015, but still not enough cause an oversupply problem, especially given that, as things stand, not a lot of VLCCs are on order during 2017.
Poten added that an additional positive factor for owners of VLCC tankers is the fact that “commercial control has been consolidating in fewer hands. At the end of 2013, Euronav agreed to buy the Maersk VLCC fleet. Shortly thereafter, General Maritime, which also had their eyes on the Maersk vessels, bought the VLCC orderbook of Scorpio tankers. This deal was later followed by the merger of Genmar with Navig8 Crude Tankers in 2014. Earlier in the same year, VLCC Chartering was established, bringing together the VLCC fleets of Frontline and Tankers International. These deals have levelled the playing field somewhat, as it gives owners more information and creates more discipline in the market”, the analyst said.
As such, the market remains well balanced and “as long as the oil keeps flowing the outlook for the large crude tankers remains favorable”, Poten concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide