Maritime & Shipping, Wet Freight

October 10, 2024

Global tanker freight seen subdued for rest of 2024, key support priced in

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HIGHLIGHTS

Ageing tanker fleet to spur new builds

War risk premia unchanged on year

Tanker earnings may fall despite wars

Global tanker freight rates are expected to be subdued for the rest of 2024 because of slower growth in China's oil consumption and overall oil trade even as OPEC+ has delayed its supply cuts, several shipping brokers, analysts and charterers said Oct. 10.

Most participants at the Singapore International Bunkering Conference, or SIBCON, and other shipping sources described "uncertainty as the only certainty" amid ongoing geopolitical turmoil. The uncertainty surrounding the potential escalation of the war in the Persian Gulf is impacting the tanker freight segment.

"The market is on a disruption watch," said Ole Rikard Hammer, an Oslo-based senior oil and tankers analyst with Arctic Securities. He was referring to the Israel-Iran conflict and ongoing wars in Gaza and Lebanon.

The market has ignored recent conflict escalations due to the absence of shipment disruptions. However, any disruption at the potential choke point in the Strait of Hormuz could quickly alter the situation.

Platts' Global VLCC Index, or GVI 7, which tracks the weighted time-charter equivalent, or daily earnings for non-scrubber, non-eco VLCCs across seven key routes using 0.5% marine fuel, averaged $22,849/d in the third quarter, down by a third from the April-June average. Platts is part of S&P Global Commodity Insights.

Shipping industry sources said freight may only receive modest support or even decline in the coming months, despite the expected increase in winter demand.

"There are a number of potentially stimulatory factors, although overall oil demand and refining conditions appear weak," Tim Smith, London-based director of shipping consultancy Maritime Strategies International, said in a recent report.

MSI has forecast daily average spot VLCC earnings of $37,000 in the fourth quarter, based on voyages to China from the US and the Persian Gulf, compared with $40,000/d in the second quarter.

If OPEC+ countries step up output, oil prices decline and importers increase purchases, VLCC freight and earnings could rise, Smith said. However, most market participants expect this to occur only in December.

Global oil demand growth is likely to remain below 1 million b/d in the near term, largely due to China's economic slowdown, according to projections by the Paris-based International Economic Agency.

More than half of China's crude imports originate from the Persian Gulf, and its limited demand has put pressure on tanker freight rates.

In clean tankers, seasonal factors, such as refinery maintenance and lower product margins, have reduced the overall demand for loading refined oil products. Dirty tankers switching to the clean segment have added to the supply. Currently, just over half a dozen VLCCs and 28 Suezmax tankers are operating in the clean segment, brokers tracking such trends told Commodity Insights.

MSI projected fourth-quarter Long Range 2 tanker earnings of $40,500/d on the Persian Gulf-Japan route to be significantly below earnings of $52,300/d in the second quarter.

Due to carbon charges at EU ports, older, higher-emission tankers are being positioned in the East. This has narrowed the discount older tankers enjoy over their other counterparts, said a source with a VLCC owner.

Bullish factors

Most bullish factors have already been incorporated into the current freight rates, capping gains in the near term, industry sources said. These include tankers undertaking the alternative longer but safer route via the Cape of Good Hope.

Shipping companies are expected to keep rerouting their ships via the Cape of Good Hope, avoiding the Red Sea well into 2025, as the industry has adapted to trade flow changes, Ocean Network Express CEO Jeremy Nixon told reporters at the Marine Money Conference in Singapore in September. While he was referring to containers, conference participants said this also applies to tankers.

The additional war risk premia, or AWRP, charged for ships moving through a high-risk area has been mostly stable despite the latest escalation in geopolitical tensions, brokers, owners and charterers in the UAE, Singapore, Seoul and Tokyo said.

The sources said the AWRP for seven days for most tankers entering the Persian Gulf remains unchanged from a year earlier, ranging from 0.1050% to 0.2100% of the hull and machinery value. However, 50%-60% of this amount can be refunded upon insurance renewal if no claims are filed during the year.

A near-static fleet, with little or no demolitions, has offset slow new-build deliveries. While the order book is looking healthier, its impact will only be seen in the medium term, the sources said.

"Around 45% of the tanker fleet is 15 years and above. A third of all ships [on a gross ton basis] to be built in the coming years will be tankers, and the orderbook is already around 12% of the overall fleet," said Catrine Vestereng, DNV's Oslo-based global director for tankers. High new ship prices, which have surged 40% in five years, and uncertainty about future alternative fuels have made some owners hesitant to order new builds, Vestereng said.



Sameer C. Mohindru, Vickey Du, Aaron Tay

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