Sunday, 27/9/2020 | 10:07 UTC+0
Libyan Newswire

Suezmax tankers could face oversupply issues moving forward, while cargo demand could also diminish

The Suezmax tanker market could be heading in a storm, as an oversized orderbook could soon prove difficult to overcome, unless older tonnage finds its way to the scrapyards. In its latest weekly analysis, shipbroker Gibson said that at the moment, about 89 Suezmaxes are over 15 years old, which equates to 18% of the existing fleet. As the shipbroker points out, this is the preferred upper employment limit set by most charterers.

However, as Gibson points out, "many of the older units are able to trade in the shuttle markets, where age is not so much of an obstacle. In fact, sixty percent of the current Suezmax shuttle fleet is over 15 years old. Older conventional tankers continue to find employment East of Suez, typically loading Middle East cargoes for India or Singapore. Between 2014-2015, huge investment in new Suezmax tonnage has taken the orderbook profile as a percentage of the existing fleet to 24%; the highest of all the tanker newbuilding sectors. Almost all of these are scheduled to be delivered over the next 24 months.

The shipbroker went on: "But how are these newbuilds going to be absorbed as there appears to be little chance of any withdrawals from the fleet? Last May we wrote in our weekly that "supply appears in check, although robust earnings are likely to lead to a slowdown in demolition activity and that the increase in the Suezmax trading fleet is still expected to be limited". We were correct at the time, but the 49 orders placed since last May now paint a different picture. It appears that geopolitical events have a huge influence on the Suezmax market, more so than other sectors of the tanker market and the short term prospects appear to be very much under threat. The loss of West African barrels to the US (TD5) over recent years (although recently enjoying a renaissance) has been substituted with WAF-UKC (TD20) as the crisis in Libyan production continues. This situation is likely to continue for the foreseeable future, but we should assume that Libya will one day return to precrisis levels in the same way as Iraqi production has returned".

Gibson added that "Iraqi production since 2006 has also supported Suezmax demand, with the largest jump in output from 3.3 million b/d (2014) to 4.0 million b/d recorded last year (including Kurdish exports through Ceyhan). However, there is a view that Iraqi production has reached a plateau and may even decline in the short term. The loss of revenues from the low oil price has limited the government's ability to pay oil companies, who in turn are not investing in Iraq's infrastructure which is needed to expand crude exports. The recent supply disruptions in Nigeria represent another threat to the Suezmax market and again some industry experts are forecasting the nation's oil output to drop sharply over the next decade. Wood Mackenzie, the energy consultancy, has cut its output forecast for Nigeria by more than a fifth, to 1.5 million b/d on average over the next decade (because of uncertainty over promised reforms to the cash-strapped state oil company) and is not related to the militant activity which is currently disrupting exports. Production here has reached a 20 year low following recent acts of sabotage. Lost Nigerian output destined for India discharge may in future have to be sourced from the Middle East which could support the Suezmax market. However, other areas where growth in cargo volumes was forecast have not materialised as expected such as Kozmino and the Caribbean and have taken their toll on Suezmax demand. The Suezmax market could face some tough challenges over the next few years; not just from the threat of the newbuildings", Gibson concluded.

Meanwhile, in the crude oil tanker market this week, in the Middle East, Gibson said that "VLCCs spent the week toying with the lower regions of the previous rate range but although availability remained well stocked in the fixing window, Charterers failed to really turn the screw and rates seemed to have bottomed out within a ws 52.5/55 range to the East and into the low ws 30s West. Roughly half the June programme is now covered and Owners will attempt to secure the rate-platform whilst keeping an eye out for opportunity to secure a modest premium. Suezmaxes picked up the pace a little and sentiment turned more positive to lead rate demands up to around ws 40 to the West and into the low ws 80s to the East with hopes, at least, of a little more to come. Aframaxes had been on the backfoot, but things then became busier and owners drove rates to 80,000 by ws 100 to Singapore with further gains possible into next week".

Source: Hellenic Shipping News Worldwide