Despite the slide in August, shipping sentiment appears intact and optimism still dominates, as cheap bunkers are likely to limit any downside potential, London broking house Gibson reported.
The expectations are that the oil price will average at around $59 per barrel in 2016, according to the latest monthly EIA forecast.
Record high world crude production supports the tanker trades. Demand also remains strong, as low oil prices typically stimulate growth in private consumption.
At the same time, a persistent oversupply led to storage. About 7% of the current VLCC fleet is not actively trading, with the vast majority of these units engaged in storage (Iranian and non-Iranian crude, fuel oil).
The VLCC spot market experienced a downwards correction in August, however, rates have recently recovered and are now beginning to stabilise.
Nevertheless, one question remains unanswered - was August just a blip?
Gibson’s data showed that a 12-month VLCC timecharter experienced a minor correction falling from $48,000 per day in August down to $47,000 per day in September but with an annual average of $45,000 per day, well above rates seen in past years.
Furthermore, the five-year timecharter is currently being traded at around $36,500 per day. This signifies that the outlook for the tanker market remains bullish, with earnings still being highly attractive.
Irrespective of market fluctuations, 2015 appears to be a good year for most tankers with rates being well above previous years. The fact that China is moving away from a substantial growth phase will certainly affect the industry to some extent, Gibson said.
China’s lower growth pattern will have most impact on the drybulk segment since the country imported 66% of the world’s seaborne volume of iron ore, 34% of metallurgical coal and exported 22% of finished steel traded volumes in 2014.
However, the impact is not as dramatic for tankers, as high crude oil production is the key demand driver. The bottom line is that these record volumes of crude must be transported or put in storage and eventually used by the end consumer regardless of short-term market fluctuations.
Barring a major economic event, demand is still growing and the fact that Iranian sanctions are expected to be lifted, combined with OPEC’s reluctance to reduce its daily production, adds up to appealing rates into next year.
However, the weight of new vessel supply will begin to take effect in the latter stages of 2016 and into 2017.
In the long term, reduced investments in oil exploration from non-OPEC countries currently seen may strengthen OPEC's power, translating into an even stronger crude trade out of the Middle East, Gibson concluded.
Meanwhile, on the charter markets, a week, which started relatively quietly for VLCCs was very active by the end.
Steady fixing in both MEG and West Africa added pressure on the tonnage list and as rates appeared to soften, they have turned around sharply, Fearnleys reported.
As the September lifting programme in the MEG finished, October started with a flurry of early month cargoes pouring onto the market and as the October BOT programme looked larger than anticipated, it was a sentiment-changer.
Owners felt that they were back in the driving seat and rates firmed for all major routes with MEG and West Africa remaining the most active. This possibly marks the start of the expected upturn for the winter months, the broker said.
Suezmaxes this week picked up where they had left off last week, as rates were stable at around WS57.5 levels for West Africa-UK/Cont/Med voyages. Although, the market touched WS58.75 before falling back to its current level.
With the absence of activity in other areas, such as Med/Black Sea and Caribs, the West Africa-UK/Cont/Med voyages remained flat and stable with a soft undertone, unless increased activity from other typical loading area in the West is seen.
Again the rates kept firming ex MEG/west as a couple of replacements were fixed on tight dates. In addition, it looked to be a relatively busy loading programme for October.
Aframax owners in the North Sea and Baltic saw rates decline further last week. A tonnage build up in these areas has been evident lately, mainly due to the fact that many ships had short options declared on discharge. This brought owners back into a fixing position more quickly than if undertaking a voyage from the Baltic to the Continent.
At time of writing (Wednesday), the market was showing no signs of movement and Fearnleys thought that rates will remain weak in the short term.
The Med and Black Sea Aframaxes experienced a stable market last week with rates hovering around bottom levels. Tonnage was plentiful and even though some activity was seen, this was not enough to put pressure on charterers.
Fearnleys expected the market to remain stable at WS75 level this coming week on this particular route.