The longer-term outlook calls for 1.1% gains per annum through 2022 amid strength in jet fuel, LPG and naphtha.
Next year, additional crude supply in the Middle East is likely to stem from OPEC producers (ex-Iran), pushing global supply growth to 2.0 mill barrels per day in 2019.
Global crude oil supply growth is projected to add over 5.3 mill barrels per day through 2022 with added support from Russia and Brazil, while Venezuela will remain pressured.
McQuilling expected global HSFO prices to average $386 per tonne this year and fall to $345 per tonne in 2019 considering demand side impacts from upcoming global sulfur regulations (testing, inventory builds).
Floating storage for fuel oil is likely to rise going forward, while excess Iranian crude will also likely be stored on floating tankers.
Crude and residuals transport demand is expected to total just over 10.8 trill tonne/miles in 2018, the highest ever recorded.
Total VLCC demand in 2017 amounted to about 6.6 trill tonne/miles, up 5.5% from 2016, as the growth of Atlantic Basin exports offset stagnating demand from the Middle East to the Far East.
For this year, McQuilling, forecast slightly lower growth of 4.6%, following a second half resurgence of Middle East crude exports amid a shift in the OPEC compliance accord.
The US will continue to add tonne/mile demand for VLCCs, particularly if logistical infrastructure improves as crude supply rises. The consultancy estimated that US Gulf flows to the Far East will expand by 9.7% per annum through 2022, as the latter’s crude deficit expands by 1.8 mill barrels per day over this period, although short-term pressure will likely stem from recent US/China trade disputes.
The future is less certain for Iran with the current US administration’s decision to re-impose sanctions. Historical observations of cross-over between Iran and other Middle East producers is well established with Iraq and Saudi Arabia, projected to absorb Iran’s lost exports, particularly to Europe.
Overall, McQuilling’s analysis of these fundamentals shows a 1% increase in the Middle East/Southern Europe Suezmax trade this year.
LR2 demand is projected to increase in 2018 by 1.1%, despite a relatively strong 3.1% increase in volumes. The average mileage for LRs has been steadily declining, as the refinery configuration mismatch with product demand in key regions has been mitigated through expanding capacity in the latter.
In 2018, the MR2 sector is expected to rise by 4.1% versus 2017 levels, as the growth in US Gulf Coast exports to West Coast South America outpaces the declines observed in flows to East Coast South America, although this is projected to stabilise in 2019.
In 2018 and 2019, McQuilling projected that the DPP fleet will grow as a whole by 2.9% and 2% on an average inventory basis, when measured by absolute vessel count.
For the VLCC sector, average inventory growth is anticipated to slow to an average of just 1% in the 2021/22 time frame, while for the Suezmax and Aframax segments, an average of under 1.5% is projected from 2019-2022.
Overall, CPP net fleet growth is projected to average 0.4% over the next two years and only 1.1% over the full five year projection period, although the 5.5% annualised growth in the chemical fleet must be considered.
In 2019, we project VLCC newbuilding values basis South Korea/Japan to average $90.8 mill, while Suezmax orders are forecast to average $61.3 mill. On average, a 3.4% increase year-on-year in DPP newbuilding values for 2019 is forecast.
Freight rates for DPP tankers are projected to remain weak through 2019, due to supply side pressures. TD3C is expected to average WS47 in 2019 (2018 flat rate basis), before climbing to WS54 in 2020 and WS68 in 2022.
On a TCE basis, the projection of bunker prices shows that TD3C will average $16,100 per day in 2019, falling to $8,600 per day in 2020 on the expectation of higher low sulfur bunker prices.
Freight rates for CPP tankers are forecast to improve through 2020, with potentially steep upward support thought for 2019 amid a favourable net fleet growth situation.
TC1 and TC5 are predicted to average WS105 and WS120 in 2019, respectively, with round-trip TCEs coming in at $12,500 per day and $10,300 per day, respectively, while a more favourable scenario is projected using triangulated routes for these tankers, up 28% and 44% for the LR2’s and LR1’s, respectively.
For the MRs, the US Gulf/Caribbean trade is expected to average $470,000 per voyage next year or $15,700 per day. On the benchmark TC2 voyage, the WS rate forecasts shows WS140 for 2019, peaking at WS147 in 2020 before trending to WS146 in the final two years of the forecast, McQuilling said.
Elsewhere, Reuters reported that state-owned oil major Sinopec's trading unit, Unipec, has suspended US oil imports.
Last Friday, US largest oil industry group warned that Trump's trade war with China posed serious risks for the energy sector.
“China’s retaliation will hit America’s energy industry particularly hard,” said Kyle Isakower, VP for regulatory and economic policy at the American Petroleum Institute (API). “American natural gas and oil companies already hit by U.S. tariffs on industrial products . . . will now be faced with Chinese tariffs on critical U.S. exports, impacting American jobs that rely directly and indirectly on the energy industry. We urge the administration to end these trade policies that work against our own energy interests and threaten our shared goal of maximising US energy production and US energy exports."
Saudi Aramco has resumed oil shipments through Bab-El-Mandeb Strait.
“The company will continue to monitor the situation and remain ready to take necessary actions in efforts to constantly ensure the safety and reliability of supply to its customers through its wide network which has the flexibility to export oil through multiple ports,” Saudi Aramco said.
Navig8 Product 2020 has taken delivery of the ‘Navig8 Pride LHJ’.
She is a 110,600 dwt scrubber-fitted LR2 built by New Times Shipbuilding and is the first of eight scrubber fitted LR2s from the company’s newbuilding programme to be delivered.
She will join Navig8 Group’s Alpha8 commercial pool.