Fearnley Securities believes the tanker market is well positioned for an upturn, with the fleet outlook being the “best in decades”.
It said spot earnings will recover from the current doldrums in the coming quarters due to limited newbuilding deliveries and potentially accelerating scrapping activity.
“While there is still plenty of demand-related uncertainties in the tanker market, the supply side is without a doubt the real icing on the cake,” analyst Peder Nicolai Jarlsby wrote in the Oslo investment bank’s latest sector outlook.
Fearnleys figures show the tanker orderbook accounts for 8% of the existing fleet, the lowest since the 1990s.
With just 93 VLCCs under construction and limited yard capacity until 2024, Jarlsby said the fleet outlook is the “best in decades”, with “good visibility” for the coming three years.
“Given the massive ordering spree seen in container, yard backlogs are now largely full for the coming years,” he added.
Fearnley Securities estimates that 21 VLCCs are due to be delivered later this year and a further 54 are scheduled for next year.
Separately, tankers with capacity totalling 77m dwt are already at or will meet the historical scrap age by end of 2023.
“A rebalancing of the oil market will make the handicap for vintage vessels even greater, potentially accelerating the scrapping story,” Jarlsby said.
While spot earnings have been pegged to multi-year lows for some months, he expects the market will gradually recover in the coming months.
“We have seen rising cargo volumes in recent weeks, and we still believe we are to see stronger earnings in the second half of the year,” he said.
“We expect stronger cargo volumes coupled with easing fleet growth, as most of this year’s deliveries already are sailing.”
With mass vaccination programmes across the globe, Fearnleys predicts that oil demand will increase from 94m barrels per day (bpd) in April to 99.3m bpd in the fourth quarter.
“Stronger oil demand expectations should translate into higher oil production growth, which is the key driver of tanker demand, and by extension earnings,” Jarlsby said.
Fearnleys expects daily VLCC earnings to improve from $24,800 in 2021 to $60,000 next year, before easing back to $30,000 in 2023.
“While there is still [Covid-related] uncertainty around the timing of the recovery, we see improving rates through the second half of 2021 and into an expected strong 2022,” Jarlsby added.
