This is partly due to increasing exports of Middle Eastern crude oil to US Gulf and West Coast refiners amid decreasing domestic production and short-term outages at Canadian upstream facilities.
Suezmaxes are poised to contract by 3.5% in the same period, as a better positioned VLCC fleet diminishes West to East cargoes. Overall, McQuilling projected annual growth of 0%-1% through 2020 for this tanker segment.
Increasing intra-Far East flows and US crude exports are projected to support 1.5% tonne/mile demand growth for Aframaxes this year. Looking into 2017, a second straight year of growth was expected, this time by 1.12% and through 2020, the expected annualised growth in tonne/mile demand was calculated at about 1% per annum.
Since 2011, there has been a robust increase in overall LR2 transport demand and this year is expected to finish 6.8% higher than the 2015 demand levels after growing by over 14% the year before.
Total LR1 demand had experienced an upward growth trajectory since at least 2000, although a slight slowdown in this growth has been observed since 2010. Actual data through April, 2016 implies a pick-up in LR1 demand, suggesting a 3.9% growth from 2015 to 2016. This tanker sector is projected to record the highest annual growth through 2020 at 3.5% among all the tanker sectors analysed.
Last year, the MR2 sector reversed a three-year slump, rising by about 2.2% year-over-year. For 2016, McQuilling projected an increase of about 4.9% in tonne/mile demand, supported by an increase of 4.6% in actual tonnage moved. Over the course of the next five years, MR2 demand is forecast to average 1%-2% per annum.
Global VLCC spot market activity recorded a year-on-year growth of 3% in the seven months of 2016, driven mainly by increased demand from China and independent oil refiners in the oil-thirsty country.
Despite this additional activity, spot rates have struggled to trade last year’s levels. The AG/Japan route averaged WS61 through July, yielding a TCE of around $45,600 per day, compared to an average of WS87 (basis 2016 WS flat rate) or TCE of $63,000 per day during the same time period last year.
Global Suezmax spot activity has experienced a decline year-on-year by 5%, due to a downturn in voyages mainly to India and the UK/Cont. The West Africa-UK/Cont route has recorded roughly 16 less fixtures year-on-year.
However, there was an increase seen out of the Caribbean to the US Gulf, particularly from Colombia. Suezmax fixture activity from the region has climbed 22% year-on-year, in addition to increased Aframax activity from the Caribbean to the US. Fixture activity from the Caribbean to East Coast Panama has fallen by 74% year-on-year (also impacting West Coast Panama/Far East VLCC fixtures).
Aframax spot market activity on a global basis increased by about 1% year-on-year. A notable surge in volume was seen on the Russia to China route as 47 additional fixtures were recorded. Exports of Russian oil to China jumped 42% to over 22 mill tonnes from January to May, according to Reuters.
Fixture counts for Aframaxes from the Caribbean to the US Gulf have also increased. Through July, McQuilling recorded roughly 137 fixtures, compared to 108 fixtures the previous year.
Global fixture activity on LR2s increased by 4% year-on-year, as growing capacity in the Middle East and India generated more opportunities for refined product cargoes. Fixture activity out of India to all discharge destinations increased nearly 40% year-on-year, the bulk of which headed to the UK/Cont and Arabian Gulf.
LR2 AG/Japan freight rates have been less than impressive this year, averaging WS98 (TCE = $18,720 per day).
As of the end of July, there were 49 uncoated tankers delivered to the fleet, representing 36% of the consultancies full-year expectations and supporting the original notion of a second half raft of tanker deliveries.
The supply outlook over the next five years may be described as a “tale of two halves.” The current year, along with 2017, are projected to see an increase in the DPP fleet as a whole by 3.6% and 5.7% on an average inventory basis.
In total, McQuilling forecast that 62 coated Aframaxes (LR2s) and 46 coated Panamaxes (LR1s) will join the fleet over 2016 and 2017, of which 27 were delivered at the time of writing. The LR2 inventory was forecast to expand by 10.7% and 9.9% in 2016 and 2017, respectively, amid high deliveries and minimal deletions, while the MR product segment is set to average only 1.0% growth through 2020.
Overall, CPP growth will average 3.5% in 2016 before trending lower over the forecast period.
The net fleet growth of the chemical fleet (IMO II) is projected to expand by 13.5% in 2016, reducing to 3.4% in 2018 and below 2% in 2019 and 2020.
DPP voyage spot rates was expected to weaken in 2017 amid accelerating supply growth. TD3 freight rates will average WS57 in 2017 before increasing to WS71 by 2020.
Floating storage economics may help stabilise the recent downturn in the market. McQuilling said. VLCC TCE levels are predicted to average $33,800 per day in 2017, Suezmax rates on TD20 to average WS66 next year, returning owners $15,300 per day, while Aframax rates are likely to be higher in the East with TD8 returning owners $19,600 per day in 2017, following $22,300 per day in 2016.
CPP rates are likely to remain stable in 2017, due to increasing demand and decelerating supply. TC1 rates will average WS108, returning $19,200 per day, while the LR1s trading the same voyage will generate earnings of $13,800 per day.
Gradual increasing freight rates through 2020 are projected. For MR owners, it is forecast that vessels positioned in Asia will earn more than those in the West amid expanding refinery capacity in the East and slowing demand in the West.
The TC2/TC14 triangulation will return owners $11,806 per day in 2017.
Asset prices for secondhand DPP tankers will see losses continue into 2017 amid a weakening rate environment, while CPP values may see a slight upturn amid a more stable earnings outlook.
Declining shipyard capacity and higher commodity prices may lead to a slight increase in newbuilding values next year, McQuilling concluded.
*McQuilling Services 2016 Mid-Year Tanker Market Outlook Update can be purchased online at https://www.mcquilling.com/reports.html