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Consultancy sees “constructive shifts” in tanker market

Written by Nick Blenkey
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OCTOBER 19, 2017 — London based consultancy Maritime Strategies International (MSI) says that an unusually high level of disruption from the hurricane season in the Caribbean and Gulf of Mexico has shaken up the tanker market. Turbulence has impacting the spot market while time charter rates remained stable, reflecting weak fundamentals.

However, says MSI, beyond the headlines there have been some important and constructive shifts in the market which are positive for future conditions.

“Oil demand growth has been out-performing expectations, with the IEA’s most recent estimate for global growth this year at 1.7%, supported by a very strong Q2. Q4 is looking healthy for demand and will see a major increase in refining activity which drives our expectations of increasing spot rates across the market,” says MSI.

Although MSI sees only limited upside for T/C rates, positive fundamentals are likely skewing the risks to the forecast to the upside.

“Contributing to the improving platform for the tanker market have been two key features of the second half of 2017: global oil stocks are being drawn down and scrapping is increasing,” says MSI Director for Oil and Tanker Markets, Tim Smith. “Although not supportive for immediate trade volumes – because stock draws will displace imports – a rebalancing of the oil market is clearly required to generate long-term trade growth – it is a necessary hurdle to pass.”

Reduced floating storage also means more tonnage returning to the market. OPEC estimates a 40 million barrel drop in floating storage since the start of 2017. Compliance with OPEC output quotas has been lapsing, but nonetheless has contributed to the rebalancing. Whether the cartel decides to extend and/or deepen cuts at the end of March 2018 remains to be seen but the MSI expectation is closer to an extension rather than another substantial cut.

MSI says that scrapping volumes – the second major driver to the improvement — have shifted up a gear to the point where sizable amounts of tonnage are being removed from the market. The impact of recent activity will be limited but should this trend continue – and MSI expects that it will – it will be supportive for earnings.

As a result, MSI forecasts that at the end of Q4, a seasonal pick up in refining and demand will see average spot rates on the key TD3 route will rise to $34,300/day and support the increase in T/C rates to around the $26-$27,000 /day mark.

“At this stage though,” says MSI, “we are not expecting major support in Q1 18, unless we see a sustained surge in global demand growth.”

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