Friday, September 21, 2018

VLCC upturn - wait a little while longer


The Crude and residual fuel oil transportation market will remain over-supplied in 2019, according to the latest outlook from McQuilling Services taken from the consultancies Mid-Year Update publication.
There will be commensurate weakness in VLCC and other DPP segments, freight and earnings before re-balancing thereafter.
Vessel supply pressure increased last year at a time when demand fell, due to rising crude pricing, lower OPEC production and de-stocking of inventories.
The inevitable decline in utilisation was the direct influence towards weakening earnings, which remains the story today.
As for 2019, McQuilling said that the projection requires an examination of forward looking fundamentals and the impact on VLCC utilisation.
There is an expected rise in VLCC supply over the next 15 months, as from an original projection of 50 VLCC deliveries, 24 have been confirmed through the end of August, indicating 26 are delivering in the near term. In addition, McQuilling’s adjusted orderbook shows 61 VLCC deliveries scheduled for 2019.
Balancing the equation is an increase in deletions, which year-to-date numbered 30, with full-year estimates adding an additional 10%. Its forecast for 2019 deletions remained unchanged at 29 VLCCs.
This shows that tonne/day supply is projected to exceed 240 mill by the end of next year, a 7.5% increase over current levels. Therefore, in order for utilisation to remain at current levels (60.3%), demand would need to match this rise.
McQuilling’s models suggested that tonne/day demand will trend closer to 2018 levels, pointing to a weaker market in 2019 in the context of vessel supply pressures. It was acknowledged that upside demand shocks and higher than expected deletions may be mitigating factors for an improvement in utilisation.
In conclusion, while the fundamentals and technicals point to a weak market in 2019, McQuilling’s long-term forecasts reveal a more-balanced market in 2020 and a significantly tighter market in 2021/22.

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