Second Half of 2018 Will be Turning Point for Tanker Market

Falling global crude inventories and increased vessel scrapping to drive market recovery, says chief executive Robert Macleod

News ID: 77443

Date: 23 November 2017 - 12:28

According to MANA , FALLING global crude inventories coupled with an increased pace of scrapping could lead to a turning point for tanker markets in the second half of 2018, according to Frontline chief executive Robert Macleod.

He noted in an earnings webcast that crude inventories worldwide are starting to decline after hitting a peak in 2016 though present crude oil tanker freight rates have yet to reflect that demand.

"We’re eating into inventories and we could also see that the higher [oil] price leads more oil to the market, which obviously is something that we would benefit for in the tanker market straightaway."

Although newbuilding deliveries have progressed through this year at a rapid clip with 44 very large crude carriers and 48 suezmax tankers delivered and a couple more due later, low spot market rates combined with a 50% rise in demolition values over last year could incentivise owners to scrap more tonnage, said Mr Macleod.

2017 saw nine suezmax tankers and 10 VLCCs scrapped to date, which he views as a substantial rise over 2016, with the pace to pick up further into 2018.

Despite substantial focus on orders placed earlier in 2017 with deliveries scheduled in 2018 and 2019, Mr Macleod believes that the number of vessels scrapped will exceed the number of newbuildings delivered ahead.

His view comes on expectations of tighter market supply next year as older tonnage exits the global fleet and as oil demand increases.

Approximately 20% of the VLCCs in the worldwide fleet could potentially be scrapped in the years ahead.

"When you consider that the current VLCC order book is equal to about 13% of the existing VLCC fleet, it’s easy to see how supply dynamics can quickly change," said Mr Macleod.

Looking further ahead, he said that in order to comply with upcoming environmental mandates from the International Maritime Organization, shipowners will be inclined to increase scrapping of older tonnage.

"Vessels that are 20 years old today will almost surely be removed from the global fleet. If they are not being scrapped, they will be sitting idle and completely uneconomical."

Mr Macleod also expects weak freight rates, reduced financing alternatives and the environmental regulations to facilitate more consolidation, which "would be positive for the tanker market."