Oil demand to remain resilient - McQuilling

Aug 11 2017

Global oil demand growth is expected to be 1.3% this year, rising to over 96.9 mill barrels per day with significant gains projected in the middle-light end of the barrel, a recent report said.

According to McQuilling Services 2017 Mid-Year Tanker Market Outlook update, over the period 2017-2021, global oil demand is likely to expand by 1% annually, climbing to over 100 mill barrels per day.


Global crude oil production is expected to rise by 55,000 barrels per day this year and remain around the levels recorded in 2015. With OPEC production cuts in full effect, Middle East crude supply is on track to fall by 580,000 barrels per day over 2017, compared to a rise in output of 1.7 mill barrels per day over 2016


While global oil supply is expected to rise over the forecast period, structural supply declines are projected in some Caribbean countries, tempering the positive impact from US and Brazilian exports.


HSFO is projected to average $285 per tonne in 2017 and $272 per tonne in 2018 before increasing above the $300 per tonne mark in later years. With the forthcoming IMO 0.5% sulphur regulations, LSFO will likely be around $200-300 per tonne higher than HSFO. However, as the interest in scrubber technology rises, we are likely to see higher demand for HSFO and a potential narrowing of this differential, McQuilling said.


Tanker demand for crude and residual fuel products is expected to increase by 2.9% this year from 2016 levels, as oil demand remains resilient amid an oversupplied market. Clean tanker tonne/miles are forecast to rise by 1.3% this year and accelerate to an annualised 1.5% over the forecast period, as economic growth in emerging economies boosts global product demand.


An expansion of 2.5% in VLCC demand is anticipated for 2017; however, as we move into the later years of the forecast period, demand growth is likely to decelerate on the back of slowing oil demand growth in OECD countries.


Following only a 0.8% increase in 2016 tonne/mile demand, Suezmaxes are poised to expand 5.8% this year as Black Sea supply from Kazakhstan and re-directed Russian flows support long-haul demand. Aframax demand is projected to rise by 3.3% in 2017, higher than the consultancy’s original forecast amid strengthening intra-Mediterranean volumes, following Libya’s return to the market.


LR2 demand is projected to fall this year by 3.1%, due to average voyage mileage declines, as product demand and supply mismatches become less pronounced. With a market share of 20%, LR1 demand will record the highest annual growth of all the sectors analysed with a projected 3.9% annualised growth through 2021.


In 2017, the MR2 sector is expected to rise by 3.1% versus year-ago levels as US Gulf Coast and Southern European exports keep volumes steady, while traditional MR load region, Northern Europe, continues to display some downward pressure.


In 2017 and 2018, McQuilling forecasts that the DPP fleet will grow by 5.1% and 3.5% on an average inventory basis, respectively, while on a deadweight basis, growth of 6.1% and 4.2% is expected. For the CPP sector, net fleet growth is forecast to reach 2.5% in 2017 and 1.4% in 2018, while the chemical fleet is on track to experience 10.6% growth this year.


There have been 146 tanker orders placed through July, compared to just 56 during the same period last year. The bulk of these orders have stemmed from the VLCC and MR2 classes, as 39 and 47 firm orders have been placed, respectively.


Newbuilding prices in 2018 are projected to increase slightly from this year’s levels. Contract values are less sensitive to the prevailing earnings environment, despite forecasts of declining timecharter rates in 2018. Shrinking shipyard capacity amid restructuring and a weaker US dollar may mitigate the expected weakness in earnings from oversupply next year.


In 2017, VLCC contract values, basis South Korea/Japan are expected to average $81.1 mill, while newbuilding Suezmaxes are forecast to average $54 mill. On average, McQuilling is projecting a 2% - 4% increase in newbuilding values for 2018.


DPP tanker freight rates are expected to remain weak over the forecast period, amid a chronic oversupply of tonnage underpinned by strong contracting. McQuiiling said that it has maintained its original call for WS61 on TD3 for 2017. However, the rest of the forecast period has been reduced downward. With ECO-consumptions, an owner may be able to produce TCEs above $30,000 per day in this trade, although more risk to the downside exists.


For the CPP sector, the outlook reflects a recovery in freight rates. However, earnings will remain influenced by global crude prices and potentially higher fuel costs.


MR rates in TC2 route are projected to average WS143 this year and rise further to WS152 before the end of the outlook period. On a triangulated basis, the TC14/TC2 voyage will return a non-ECO ship an average TCE of around $11,637 per day over the five-year forecast period, McQuilling concluded.   

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