After a year of tumultuous political and p[ds_preview]olicy upheaval, the tanker market will see recovery in 2018 and beyond, predicts a new MSI analysis.
The fourth quarter of 2016 is capping what has been a mixed 12 months for the tanker markets. The agreement by OPEC members and non-members alike to cut production in an attempt to reduce oversupply will have a limited negative near-term impact, according to the latest MSI Quarterly Tanker Market analysis. But there are reasons to be positive on prospects for the longer-term.
Negative dynamics in 2016
Despite some seasonal upside in the final period of the year, 2016 has overall undoubtedly been a year of negative dynamics across the tanker industry. This has been the case both in terms of the annual change in freight rates, which has been universally negative against 2015, and asset prices, on which the twin gravitational forces of lower newbuild prices and lower earnings have acted forcefully.
A lack of trend
Compared to other shipping sectors, the last couple of years in the tanker market have seen a distinct lack of trend. Markets have move up rapidly and then retreated at almost the same speed. Volatility and uncertainty over the shifting landscape of the oil market have been reflected and amplified in the tanker freight market.
Oversupply of productive capacity in the oil market has been mirrored by excess tonnage capacity in the tanker market. Both are now rebalancing and although fleet growth is expected to remain high in 2017.
Tanker scrapping to move higher
»Low earnings and the ratification of ballast water treatment regulations support MSI’s expectations that tanker scrapping will move sharply higher in 2017,« says MSI Senior Analyst Tim Smith. »This will helping construct a market recovery in 2018 and beyond, built on much lower fleet growth rates than being seen currently, both in the large crude and product tanker sectors,« he adds.
MSI cautions on becoming too bearish, given the relatively light cut by OPEC, prospects for crude coming out of the US and potential improvement in the refining sector, should the oil glut be alleviated. Downside risks of net fleet growth, a relapse in Chinese demand and broader macroeconomic malaise resulting from protectionist measures are still present, and could still push 2017 substantially lower, says Smith.
