Tanker shipping: A strong season lifts crude oil tankers before it is expected to hit the fan in 2017


From a crude oil market perspective, 2016 can be summed up as “eventful”. In January, the international sanctions on Iran were lifted, resulting in a very swift increase of their oil production capacities and subsequent re-entry into the global oil export market.


Seasonality has certainly been a friend of crude oil tanker owners during Q4. Since global refining crude throughput bottomed out in October due to regular annual maintenance, the demand for crude oil tankers has been high. After sliding most of the year, with suezmax earnings falling below USD 5,000 per day in August and VLCC earnings dropping to USD 15,000 per day by the second half of September, a strong comeback came as a bonus after a run of strong earnings ended. Stock piling of oil benefits the tanker market, and a reversal will certainly harm it.

For oil product tankers, the party seems over for now. LR1 and MR tankers have seen freight rates at or below USD 10,000 per day since mid-September. The fact that LR2 rates on Ras Tanura – Chiba trading fixed at USD 20,000 per day in the last days of 2016 and early days of 2017, is likely to be a “one-off”. Nevertheless, some years do provide an extension to the winter season, where a peak in demand is so strong that the fundamentals in the shipping market get side-lined.

From a crude oil market perspective, 2016 can be summed up as “eventful”. In January, the international sanctions on Iran were lifted, resulting in a very swift increase of their oil production capacities and subsequent re-entry into the global oil export market.

Spot oil prices plummeted by 48% from 2014 to 2015 and a further 11% from 2015 to 2016 on an annual average. In December 2016, OPEC and selected non-OPEC members agreed to the first cut in output since 2008 (OPEC only) and 2001 (OPEC and non-OPEC) respectively.

Between Q1 2014 and Q4 2016, global oil supply grew by 6.5% while demand increased by only 5.3%, creating an imbalance in the market and triggering stock piling.

According to the International Energy Agency (IEA), oil stock piles could reduce following the agreement to decrease oil production by OPEC and some non-OPEC members in December 2016. But this will only happen if:

1) Demand does not shift in tandem with supply; or

2) if the decreased supply by OPEC and some non-OPEC members (which might result in increasing oil prices) is not encouraging other oil producing countries, like the US, to ramp up their production. There is great uncertainty surrounding this.


It was a busy year for the tanker shipowners taking delivery of newbuild ships in 2016. For crude oil tankers, it was the busiest year since 2012, while product tankers had not seen as much DWT capacity added to the active fleet since 2010.

Owners were so busy taking delivery of new ships that they “forgot” to prepare for future market conditions and sold ships for demolition at the same time. We must go back to the late 80s to see such low level crude oil tanker capacity being sold for demolition and back to the late 90s for the oil product tankers. Cutting deep into excess capacity by demolishing a lot of ships during 2011-13, the ground was laid for the freight rates to climb during 2014-2016. That medicine has now been prescribed again, as 2017 and 2018 are set for significant capacity to be delivered while the demand side eases.

Oil tanker shipping was the only profitable shipping market in 2016, and owners still managed to avoid spending all the profits made in the freight market on newbuilds (for future delivery). Out of the 9.2m DWT orders placed, crude oil tankers were by far the most popular choice.

Both tanker segments had high fleet growth in 2016, as crude oil tanker fleet capacity increased by 5.7%, while the oil products’ fleet expanded by 6.1%. For 2017, BIMCO forecasts lower supply growth levels - but still greater levels of growth than from the demand side - bringing pressure on freight rates.

The crude oil tanker supply growth outlook is also available in the online version.


If the decision made by the OPEC (and some non-OPEC nations) has a constraining effect on global oil supply - potentially no longer outstripping global oil demand - refineries cannot take advantage of low and volatile crude oil prices and will not contribute to further stock building of oil.

This in turn results in drawing down stocks and poses further risks to a tanker market that is already seen to be struggling due to a high inflow of new capacity in 2017. Bloated oil product stocks especially are limiting trading activity and thus placing demand on transports to level out local imbalances.

We have said it many times before, much of the present and future oil demand growth will come from Chinese cars, as the rest of the world is not demanding as much these days. Alternative sources of energy are, in some places already cost-competitive, and therefore gaining market share at the expense of fossil fuels. Still, recent subsidies to support the purchase of cars in China have proven effective. More cars will enter the streets, not the very ‘thirsty’ ones, but they will still push Chinese oil demand higher.

That is why Chinese crude oil imports are also a factor for tanker shipping in 2017. As refined oil exports out of China are also becoming a factor, product tankers may look increasingly to China too, shying away from the traditional big oil consuming regions in the west.

In the full 12 months of 2016, China imported 381 million tonnes of crude oil – up by 13.6% from 2015. 

in Copenhagen, DK


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