Euronav reported its final financial results for the full year to 31 December 2019.
Hugo De Stoop, CEO of Euronav said: “Tanker market recovery gained traction in 2019 with Q4 delivering some of the strongest freight rates in recent years. Euronav is ideally positioned to benefit from strong freight rates thanks to its operational leverage to the upside and at the same time is perfectly positioned to seize opportunities when the markets are less attractive.
Our strong balance sheet and disciplined approach to fleet renewal and growth are critical in times of high volatility and uncertainty. With the adoption of the new Belgian corporate code we now have the capability to align the performance of Euronav more closely with expectations from shareholders with quarterly returns via dividends. Euronav looks forward to navigating the large tanker cycle and the Covid-19 situation with confidence during 2020 and beyond.”
The year of 2019 began with a strong baseline on the back of increased OPEC oil production towards the end of 2018, combined with a fairly balanced fleet profile following robust 2018 recycling activity. This all came to an abrupt end as OPEC and its allies began implementing agreed production cuts in January 2019, which saw OPEC production reduced by 1.4 mbpd in the first quarter of the year. OPEC production continued to decline through 2019 to an average of 29.9 mbpd across the year. This was 2 million barrels per day less than the average production in 2018.
The official self-imposed supply constraints explain the majority of the OPEC production decline but it was also impacted by involuntary disruptions emanating from sanctions against Venezuela and Iran cutting close to 2.5 mbpd from global markets. This decline in OPEC supplied barrels was made up for by production increases primarily from the US. Infrastructure upgrades in the Gulf of Mexico have allowed increased access for US barrels to the Far East and Europe. Towards the end of the year, non-OPEC production received a further boost from new fields in Brazil and Norway.
The price of oil was relatively stable through 2019 with Brent fluctuating between USD 52 and USD 75 to average USD 64 per barrel. The price of WTI traded at a discount to Brent through the year and averaged USD 57 per barrel. The average price of the OPEC basket was in line with Brent at USD 64. Oil demand growth weakened during Q2 & Q3 of 2019 and is currently estimated at between 0.7-1.0 mbpd below the long-term growth average of 1.1 mbpd (since 1990). The first half of the year was particularly hard hit by weak oil demand, mainly due to a slowdown in the global economy and concerns around a US- China trade war, but rebounded in the second half as refineries across the world started ramping up their throughput in preparation for the IMO 2020 deadline for ships to burn bunker fuels with a maximum sulphur content of 0.5%.
The vessel supply side of the equation also experienced tightening in the second half of the year driven by three factors. Firstly, sanctions on Iranian tonnage continued to remove capacity from the trading fleet. Secondly, leading up to the implementation of the IMO 2020 regulation the market saw a significant number of large tankers moved into storage positions holding compliant fuel oil. A third temporary cause of fleet removal was vessels undergoing counter cyclical drydocking to retrofit scrubbers. These drydocking proved to take longer in many cases than originally anticipated.
The catalyst that eventually sent freight rates surging was when the US imposed sanctions on two subsidiaries of COSCO Shipping at the end of September.
2019 closed out with a very strong freight market supported by a perfect storm of tight fundamentals, geopolitical events and IMO related market disruptions. The anticipated recovery in the crude tanker markets meant we could end the year on a high, and again enjoy the upward volatility and premium earnings that a more balanced tanker market has to offer.
In a short space of time 2020 has already experienced considerable volatility with geopolitical risk factors helping to drive freight rates to elevated levels, before the economic dislocation and uncertainty from Covid-19 gained traction from mid-January onwards. The large tanker market has been boosted by the move from Saudi Arabia to unilaterally increase oil supply which will underpin freight rates for much of Q2 2020. However, the duration and scale of the impact from economic dislocation from Covid-19 will be a key driver of tanker markets for the remainder of 2020. Euronav retains a very strong balance sheet and sufficient access to liquidity to manage such an environment.