The tanker sector is set to shrug off mounting gloom over the state of the global economy as an increasing squeeze on tonnage is expected to boost earnings in 2023.

Longer voyages owing to new restrictions on Russian exports, slower steaming speeds and a low orderbook are likely to outweigh any downturn in demand for oil, according to forecasts from shipowners’ organisation Bimco.

After a volatile 2022 that delivered supercharged profits for some tanker owners, more uncertainty lies on the horizon as the European Union prepares to impose its second wave of Russian seaborne import bans on 5 February.

That uncertainty is set to be exploited by tanker owners as Europe hunts for refined oil products from further afield, even as the world edges towards a recession over the next 12 months.

Trade dislocation caused by the invasion contributed to average time-charter equivalent rates for VLCCs increasing from around -$10,000 at the start of 2022 to levels peaking at $75,000, according to the Baltic Exchange.

“It is impossible to say how long the war will persist but, for now, with few signs of peace, and permanent changes to the world’s relationship with Russia, shipowners have good reason to remain bullish into 2023,” Gibson Shipbrokers said in a note.

A ban on the imports of seaborne refined oil products potentially poses greater difficulties for Europe than the 5 December crude ban. It will also be accompanied by a series of price caps aimed at limiting Russian profits from its exports while allowing its oil to flow to countries outside of Europe.

Europe has largely replaced Russian crude with supplies from Kazakhstan, Norway, Latin America and the US. But continental buyers remain under pressure to replace Russian diesel over the next month.

The struggle to find new sources was highlighted by a surge in Russian diesel flows into Europe in November to beat the ban.

The sharp increase contributed to Russia’s oil exports reaching their highest levels since April and just below pre-invasion levels, according to International Energy Agency.

The search for alternative diesel supplies will see product tankers lead the surge in 2023 as it hauls more refined oils from further afield from refiners in places such as India, according to market watchers.

Niels Rasmussen, chief shipping analyst at Bimco. Photo: Bimco

Niels Rasmussen, chief shipping analyst at Bimco, said the average haul could increase by 3% to 4%. He added that freight and time-charter rates, and secondhand values of ships, are likely to increase as a result.

New environmental regulations that come into force in 2023 are likely to reduce the speed of the fleet, which he said would add to the squeeze on tonnage. That, combined with the low orderbook for tankers that will continue throughout 2024, is likely to see tanker supply cut by 1% in 2023.

Even if the global economy fares worse than feared, Rasmussen said it would “temper improvements but is unlikely to eliminate the positive outlook”.

The extent to which an economic downturn will hit the tanker sector depends on China and its continuing efforts to recover from Covid-period lockdowns.

Rystad Energy said it believed that China was emerging from a demand trough, with rising air travel in Asia and car traffic in Beijing showing signs of a rally in oil demand — albeit still below pre-Covid levels.

Broker Barry Rogliano Salles (BRS) said it believed China would account for half of oil growth in 2023 as it seeks to use its refinery sector to kick-start its economy.

Crude demand

“We anticipate that Chinese crude demand should remain strong, which in turn should support crude imports,” it said.

“Considering that around 80% of China’s seaborne crude imports arrive by VLCC, this will provide support to hire rates for these 2m barrel carriers, especially from the Middle East.”

But the invasion of Ukraine launched by Russia and the efforts by G7 nations to limit fossil-fuel profits of the world’s second-largest oil exporter has created unprecedented circumstances that remain difficult to assess, according to researchers.

The early weeks of the European ban have not led to as big a shift in trade as expected owing to the declining price of Russian crude, which is trading below a price cap set by the G7. The price has allowed Western insurers to continue covering ships involved in Russian trades.

There has also been no significant drop-off in Greek-owned ships trading Russian oil, according to early data from the Finland-based Centre for Research on Energy and Clean Air.

Bjornar Tonhaugen, head of oil market research at Rystad Energy, said that despite less dramatic trading shifts than expected, the changes had created a “complete new landscape for global oil supply”.

Bjornar Tonhaugen, of Rystad Energy, said Russia and recession were set to be key factors in 2023. Photo: Pierre-Michel Virot/Marine Money

He predicted that Russia would lose 1.1 million barrels per day of crude and product exports in 2023 from the 10 million barrels produced before the war. Nearly two-thirds of the loss would come in product exports.

“What will 2023 likely look like? This is very, very difficult,” he told a webinar assessing likely developments. “Russia will lose a bit of its export market but not necessarily much.”