Maritime Strategies International (MSI) has forecast tankers rates will come down sharply sometime in the second half of this year when oil firms begin to draw down their stocks.
While floating storage demand has boosted crude and product tanker earnings in recent weeks, the consultancy expects recovery in oil consumption and reduction in crude production to trigger a destocking cycle eventually.
“[When] we start to see demand recover recovery…we will see inventories drawdowns, which will suppress the requirements of [oil] imports,” MSI’s oil and tanker director Tim Smith said in a webinar on Thursday.
“We will see much lower trade volumes as a result of production cuts. We will see a sharp reversal in [tanker market] conditions…especially in the back end of the year.”
Demand uncertainty
Smith added the tanker market downside will be “very significant” in 2021, though he admitted much will depend on the pace of oil demand recovery.
“It depends very much on the policies around the restrictions of movements” to container the spread of coronavirus, Smith said.
MSI predicts the product tanker sector to react to oil trade quicker than crude, whose destocking tend to take longer.
“Product trade will react more quickly to crude across 2020,” Smith said. “We expect a sharp rebound in product trade in 2021, but this is not the case in crude where inventory drawdown and lower exports as a result of output reductions continue to pressure seaborne volumes.”
Rates to fall later
In its latest Tanker Freight Forecaster report, MSI expects the one-year charter rate of a VLCC to fall to $38,000 per day in September from $57,500 in June, suezmax to fall to $25,000 from $38,000, and aframax to decrease to $22,000 from $30,000.
The one-year rate of a MR is forecast to ease to $14,000 per day from $15,500 in the same timespan.
MSI suggests the time charter rates will be falling in line with spot earnings, which have been at historically high levels recently.
As of Thursday morning, Clarksons Platou Securities estimated global average VLCC earnings at $216,000 per day, suezmax at $101,200, aframax at $66,000 and MR at $73,000.
Tanker players have said the market strength mainly lies in floating storage needs, with oil firms rushing to fix vessels for contango play and logistics reasons.
With the ongoing oil demand destruction, Smith said the amounts of oil entering floating storage would continue rising for some weeks.
“We expect over 20% of the VLCC fleet to be engaged in floating storage…across the course of 2020” on average, Smith said. “The mid-year peak will be higher.”
“This is going to be supportive for earnings, but it will [only] have a temporary effect.”
