Asian tanker freights expected to recover on geopolitical disruptions, seasonal uptick

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The clean and dirty tankers’ freight are likely to see some recovery in the October-December quarter on winter demand and geopolitical disruptions after the recent decline due to seasonal refinery maintenance, market participants said.

Brokers estimated daily VLCC spot earnings for scrubber-fitted ships around $30,000 Oct. 9 on the Persian Gulf-North Asia routes, down from over $35,000 on July 1.

Despite longer voyages from the US, lesser liftings from the Persian Gulf have dragged down freight and earnings, which might show some recovery, after having slipped below $10,000 for VLCCs without scrubber on Oct. 6, a VLCC owner said.

London-based Maritime Strategies International, or MSI, has forecast the daily average spot VLCC earnings at $44,100 in the current quarter, considering voyages to China from the US and the Persian Gulf, compared with $26,700 during April-June this year.

MSI said the estimated current quarter Long Range 2 tanker earnings at $37,500/d on the Persian Gulf-Japan route are likely to be higher by 38% compared with the April-June quarter at $27,100/d.

Most analysts, brokers and chartering executives point toward a mix of contradictory factors of similar weightage, expected to operate simultaneously and drag freight in opposite directions.

Last week, OPEC+ decided to continue its ongoing supply cuts, which implies no change in the output by Saudi Arabia and Russia’s 300,000 b/d export curb in addition to the output reduction implemented since late-2022. These fundamentals were already factored in the current freight, shipping industry executives said.

Typically, the supply cuts by OPEC+ are associated with weak demand and depressed market but this time the oil demand is strong with prices up 25% in last quarter, Ole-Rikard Hammer, an Oslo-based senior analyst for oil and tankers at Arctic Securities told S&P Global Commodity Insights late last week.

OPEC+ strategy of deliberately undersupplying the oil market may turn out to be finite, thus chartering activity is bound to eventually rise, which can quickly lift freight due to tight tankers’ supply, Hammer said.

Apart from unfavorable summer for dirty tankers, freight was dragged down due to OPEC+ supply cuts, refinery turnarounds and return of tankers that had earlier been transporting Russian cargoes as a result of Urals prices rising above the $60/b price cap, Enrico Paglia, a Genoa-based research manager with shipping brokerage and consultancy Banchero Costa said Oct. 6.

Steeply backward dated crude prices point toward a rapidly tightening market, Hammer said.

Inventories are at the lower end of the five-year average and going to draw down further in the current quarter, MSI’s Director Tim Smith said in its latest monthly report for September.

Crude inventories must be replenished amid high China refining run rates and strong European demand for diesel, a VLCC broker said Oct. 9.

Growing demand

However, the outlook is turning positive on growing demand. According to Paris-based International Energy Agency’s latest forecast, global oil demand will rise 2.2 million b/d this year to 101.8 million b/d, led by resurgent Chinese consumption.

Refinery margins are strong and may boost tankers’ demand as refiners will be incentivized to take as little downtime as possible, Hammer said.

Both Hammer and Paglia expect OPEC+ to “gradually reopen the taps.”

Similar to 2021, Saudi Arabia at some point is expected to start reversing cuts, once confident that the oil market can handle it and Russia may follow suit, to export costlier oil “under the radar,” Hammer said.

Paglia pointed out that surging US crude exports have already partially offset OPEC+ supply cuts. US crude oil production is now hovering around an all-time high of 13 million b/d, up 4 million b/d from the lows during the coronavirus pandemic.

Rising uncertainties

The uncertainty following the Russian-Ukraine war has blurred the outlook for tankers.

In September, Russia restricted exports of gasoline and diesel to reduce domestic fuel shortages. Although the restrictions have since been relaxed market participants said Oct. 9 that concerns remain because producers still have to supply at least half of their output in the domestic market.

Many tankers which were earlier loading cargoes from Russian ports are now looking for employment in the Persian Gulf, thereby adding to the supply, a chartering executive tracking such deals said Oct. 9.

Russia’s refined product exports, primarily diesel and gasoil account for about 7% of the clean seaborne oil flows, according to shipments tracked by MSI. There is likely a geopolitical element to the move, MSI’s Smith said.

The “big X factor” is whether Russia will “weaponize” its oil exports like it did with natural gas and curtail volume in order to force prices higher, Arctic’s Hammer said. There can be panic to hoard oil due to such moves, Hammer added.

Even the positive outlook for dirty tankers is at considerable risk despite prospects of seasonal upside, Smith said.

On supply side, Bancosta expects a 2% increase in dirty tankers’ fleet in 2023, however, most of it is already delivered, Paglia said.

China is willing to reduce the usage of very old tankers for crude imports and if some of these 500 ships are gradually scrapped, an unprecedented and rare decrease in fleet size next year cannot be ruled out, Paglia added.

The freight outlook has become both more complex and obvious at the same amid increasing uncertainties, Hammer said.

Source: Platts

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