GÖTEBORG, Sweden, Feb. 18, 2021 /PRNewswire/ -- We are now in
the middle of the first quarter of 2021 and the tanker market
remains very weak. We are not expecting any significant change
during this quarter - but, as we wrote in the 2020 year-end report,
we believe that there will be a gradual strengthening from Q2
onwards.
Several interacting factors point to this:
1. A continuing increase in demand for oil and oil
products
World oil consumption continues to increase. With vaccines,
stimulus packages and general optimism, the global recovery is now
clearly on the right track. We, and many others, consider that oil
consumption during the second half of the year recovered
sufficiently well to have a positive effect on demand for tanker
transport. Analysts differ slightly on exactly how consumption is
developing. JP Morgan and others predict that demand will be back
to approaching 100 million barrels per day by the end of the
year.
Total oil demand - forecast 2021
Source: JP Morgan
2. Stocks continue to decline
Looking at oil production, Saudi
Arabia announced in January that it intended to reduce oil
production by a further 1 million barrels per day during February
and March. In combination with increased consumption, this will
mean that worldwide oil stocks will continue to fall at a steady
pace - down to the five-year average. For the tanker market, the
road there is a bitter pill, but is also indispensable for an
eventual market upturn. Things are tough now but will have
beneficial effect in the longer term.
OECD total commercial stocks
OECD inventories vs 5-year average
Source: Arctic Securities
3. Record low net fleet growth - and increased
distances
Looking at the supply side, the situation looks really
promising. Net fleet growth in 2021 and 2022 is expected to be
about 2 percent - a historically low level. In the current
situation, virtually no new orders are being placed either, which
means that the low growth rate will be gradually extended. This is
obviously good for the tanker market as a whole. In addition, it
should also be mentioned that we see a continuing trend towards
longer transport distances. Emerging countries in Asia are expected to continue to account for a
growing share of the increase in oil consumption, contributing to
increased distances and therefore also increased transport
needs.
4. Tight tanker market allowing for large
fluctuations
Basically, the tanker market is a "tight" market, i.e., even
today there is no significant oversupply of vessels. Despite the
fact that the markets are poor at present, all vessels still have
fairly continuous employment and no vessels are laid up. This means
that even small changes in demand for tankers can have a major
impact on freight rates. In a "normal" market, the utilisation rate
for the total fleet is around 85 percent. At 90 percent, the market
is extremely strong and at 80 percent extremely weak. That is how
small the differences are.
Latest news about oil
The increasing consumption is now also reflected in the price of
oil, which has risen by about 20 percent over the last month. At
the time of writing, it is trading at around $63 per barrel. This is basically about the
market becoming increasingly convinced that demand for oil will
recover to pre-Covid levels. Here and now, the cold weather is also
contributing. In the United
States, an Arctic front has reached all the way down to
Texas, which is extremely unusual.
Not only has the cold weather increased demand for oil, it has also
resulted in partial refinery closures and a decrease of the
domestic production (due to pipeline problems). This has resulted
in a total production loss of up to 3.5 million barrels per day. Of
course, this all leads to a further increase in the rate of
inventory reduction.
Refinery capacity has also declined in other parts of the world
in recent times - albeit temporarily and for rather different
reasons. In Japan, capacity has
declined by about 20 percent (equivalent to 0.6 MBD) after the
latest earthquake. The reduction will mean an increased need of
finished oil products. The strike on the Norwegian Continental
Shelf has been averted, but troubles in the Middle East with drone attacks in northern
Iraq are causing tensions to rise
further. This all contributes to an even tighter oil market, which
is expected to bring increased demand for tankers.
Good starting position for us when the turnaround
comes
Given the weak tanker market, we are now doing what we can to
ensure we have the best possible starting position when the
turnaround comes. During the last year, we have sent 5 of the fleet
vessels into drydock and will do another 3 in the spring. In
addition to periodic maintenance and upgrades, we have also
installed statutory ballast water treatment systems. Doing this
during a weak market is obviously better than in a strong one, as
earnings are still poor.
This means that when the market turnaround comes, we will be
able focus fully on serving our customers - and actually start
making money again. We look forward to doing so.
Kim Ullman, President
This Market Update is also available on the Concordia
Maritime website via this link.
For more information, please contact:
Kim Ullman
CEO, Concordia Maritime AB
Tel: +46 31 855003
Mob: +46 704 855003
E-mail: kim.ullman@concordiamaritime.com
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