2018 is not likely to be the turning point for the crude oil tanker market taking into account the anticipated fleet growth set to continue this year, distorting further the balance between supply and demand.
A total of 58 very large crude carriers (VLCCs) are scheduled to be delivered this year, although some of these are expected to be pushed to 2019, and further contracting has decreased when compared to 2017.
This compares to 50 VLCCs delivered in 2017 and 47 in 2016.
However, increased scrapping of older crude carriers has sparked some optimism with 13 VLCCs removed from the global fleet in 2017 and up to seven reported to be scrapped so far this year.
“It will take some time until the crude oil tanker market has sufficiently absorbed new supply of vessels, despite the existence of factors that are evident in strong markets. The inflection point in the market has clearly not yet arrived, but when it is here and the right opportunities present themselves, we will be prepared to act,” Frontline said in its financial report for the fourth quarter of 2017.
The Norwegian tanker owner has two more VLCCs pending delivery, with two VLCCs and one LR2/Aframax tanker delivered in January 2018.
On the demand side, the world economy and crude oil demand remain strong. The oil supply growth has primarily come from the Atlantic Basin, whilst the demand growth is in Asia, which is positive for tonne-mile development, Frontline said.
Nevertheless, the drawdown of crude inventories has pushed down the freight rates, negatively impacting the market.
“While inventories remain elevated, days of forward demand cover has decreased sharply due to rising consumption, and we expect inventory draws to halt in the second quarter of 2018,” Frontline added.
Speaking of the outlook, Frontline believes there will be opportunities going forward and the tanker owner says that it has the financial and commercial platform to grow its fleet when a beneficial opportunity arises.
“Until then Frontline is sharply focused on maintaining our cost-efficient operations and low breakeven levels,” the shipowner concluded.