Scheduled turnarounds in North America may have peaked, but globally planned outages will come to a head this month, whilst Asian maintenance will remain through May.
High turnaround activity has already impacted both the crude and product tanker markets this quarter, however, evolution in global crude trade flows appears to be supporting tonne/mile demand during what is typically a weak period.
In the products sector, export volumes are now falling in line with seasonal trends but should be set for a strong rebound in the second half of 2019, as post maintenance export volumes increase.
As OPEC strictly adheres to its output agreement, refiners are increasingly having to look to the Atlantic Basin to fulfil their feedstock requirements.
Given that a voyage from the US Gulf to North Asia takes six to eight weeks, with charterers typically fixing a month forward of loading, Asian refineries sourcing post turnaround supplies will have to act now, which has partly underpinned the recent strength in the VLCC market.
Forward buying activity may also result from paranoia about crude supplies in the second half of the Year. Even players with period commitments appear to be showing concern over whether they will receive their full contractual volumes this summer when Middle East domestic demand rises.
In addition, new refinery start ups, with which several Middle East producers have signed contracts, coupled with higher global run rates, will add to the tightening of the crude oil markets in the second half of this year.
Assuming OPEC maintains its production discipline, refiners will be forced to increasingly turn to the Atlantic Basin for supplies, Gibson said.
For product tankers, January earnings held up better than expected, mainly on the back of strong Middle East and Chinese export volumes.
However, barring any non-fundamental factors, the market is expected to remain under pressure from lower volumes until the third quarter, when product supplies will increase post turnarounds, particularly East of Suez.
In the West, refinery turnarounds conclude earlier, but will remain high through April, which potentially signals an improvement in fundamentals sooner than the East market.
Much will depend on demand from West Africa and Latin America. Mexico should remain a supportive demand outlet this year. Venezuela remains uncertain, whilst other countries, such as Brazil, should see modest import demand growth.
What is uncertain, however, is how much product West Africa, particularly Nigeria will absorb, now that the elections are over.
However, against these demand side factors, fleet supply will remain a bearish factor for much of the year.
The crude market is yet to fully feel the force of 2019’s newbuilding programme, with a number of recently delivered vessels still involved in the gasoil trade.
As the year progresses, new tanker deliveries will present more of a challenge to both the crude and products markets. Indeed, whilst the demand side fundamentals look strong moving forwards, fleet growth is expected to place a ceiling on the market’s potential for much of the year, Gibson concluded.