Clarksons Securities believes pressured tanker rates could bounce back strongly if China gets a grip on its Covid cases.
VLCC earnings are falling due to weak Chinese oil demand and lower export volumes from Opec and Russia, the investment bank said.
The company assesses eco VLCC earnings down 5% from Wednesday at $51,800 per day.
Analysts led by Frode Morkedal said: “To understand the weakness, look no further than China. With Covid-19 putting a dampener on demand in the short term, crude price spreads have narrowed, making it less appealing for Chinese refiners to buy from overseas and instead rely on stockpiles.”
“We predict that once the current outbreak in China is contained, the tanker market will witness a significant surge in activity,” they added.
Tanker owners’ share prices have similarly deteriorated markedly in recent weeks.
But Clarksons Securities said vessel values have continued to rise.
Listed crude tanker companies are trading at 83% of net asset value (NAV) on average.
Frontline’s discount of 17% to NAV is the largest the investment bank has noted since January 2022.
“We feel that now is an excellent time to buy tanker equities since the fundamentals remain strong despite the present challenging period, which may be explained by China’s temporarily lower demand,” the analysts said.
Mixed messages
Nicolai Hansteen, chief shipping analyst at Norwegian broker Lorentzen & Co, believes tanker owners are receiving mixed market messages.
Russian crude oil exports are shrinking, not only to north-west Europe and the Mediterranean but also to Asia, where volumes are increasingly diminishing to about 2m barrels per day, he explained.
“However, Chinese refineries have been allowed higher exports of petroleum products in the first batch of year’s quotas, which should also whet their appetite for crude oil imports,” he added.
Last month, African Opec producers like Angola and Nigeria also began to close in on their target levels, the analyst said.
“Now, reports are coming that Saudi Arabia’s oil company Aramco may cut further official selling prices into Asia for February,” Hansteen added.
Aframax and suezmax earnings have fallen more than VLCCs, he argued.
The Baltic Exchange quoted the Middle East Gulf to China route at $32,594 per day for VLCCs.
