Tanker market remains bullish in light of 'regional imbalances': International Seaways

International Seaways expects that tanker freight will remain elevated in the short and long term going forward, stimulated by increased ton-mile demand as oil supply growth concentrated in the Atlantic Basin funnels into major oil demand centers in the East, the company said in its fourth quarter earnings call Feb. 29.

"We expect a great run over the next few years, as mentioned regional imbalances of oil should continue to increase the need for tankers as growth in oil production coming from the West and the oil demand from non-OECD countries in the East," CEO Lois Zabrocky said.

Total oil demand is expected to grow by 1.7 million b/d in 2024, with growth focused in China, India and other major Asia oil demand centers, according to analysts at S&P Global Commodity Insights.

On the crude production side, International Seaways expects that output from countries outside of OPEC+, a coalition of OPEC and other oil producers, will climb by 1 million b/d, while OPEC+ supply will remained constrained from sustained production cuts.

Referencing both tanker supply disruptions and geopolitical risks, crude tanker demand is expected to grow by 6.5%-7.5% in 2024 and 2%-3% in 2025, according to BIMCO's Tanker shipping Market Overview and Outlook published Feb. 29.

Spot tanker freight rates have already continued to reflect the bullish 2024 sentiment in the midsize tanker segment so far in 2024. The Platts 70,000 mt US Gulf Coast-UK Continent freight assessment from S&P Global Commodity Insights averaged $50.14/mt in January 2024, up from $43.21/mt in the fourth quarter of 2023 and a $28.21/mt average in the third quarter of 2023.

Freight for Very Large Crude Carriers have seen even less support in the new year, having averaged $30.31/mt in January 2024 after averaging $30.55/mt in the fourth quarter of 2023, according to S&P Global data.

International Seaways' dirty tanker earnings in the fourth quarter of 2023 were lower year on year for all segments but showed growth from the third quarter of 2023 in the midsize tanker segment, with the company's Aframaxes' earnings rising more than 29%.

International Seaways reported earnings of $43,000/d for VLCCs, $47,500/d for Suezmaxes and $44,000/d for Aframaxes in the fourth quarter.

Geopolitical risk drives ton-mile demand

Outside of the supply-demand mismatch, geopolitical factors continue to play a key role in increased ton-mile demand.

Attacks on ships transiting through the Bab al-Mandab strait amid the Israel-Hamas war has prompted shipowners to divert their ships to transit around the Cape of Good Hope, which can add as much as 14 days to a voyage and significantly alter tanker itineraries.

"I think we are at peak disruption levels with the number and variety of attacks indiscriminately on tanker assets travelling through the area," Zabrocky said. "We are seeing a large number of tankers deviate around the [Cape of Good Hope]."

In addition, Europe-based crude buyers continue to source crude import barrels from other regions amid sanctions on Russian crude, increasing trade on the longer-haul voyages from the Americas and West Africa since the start of 2022.

Supply constraints fuels long-term outlook

An ever-tightening tanker supply picture continues to support bullish freight outlooks in the long term.

Total tanker fleet growth has remained below 3% since February 2022, stemming from a dismal orderbook as the industry eyes full shipyard capacity, uncertainty around environmental regulations and historically high newbuilding prices, the company showed in its earnings presentation.

The company also expects scrapping to ramp up as the average fleet age reaches 13.1 years and as shipowners slowly exit sanctioned trade to scrap compromised ships.

International Seaways owns and operates 13 VLCCs, 13 Suezmaxes, five Aframaxes/Long Range 2 tankers, 11 LR1s and 35 Medium Range tankers.