MSI: Tanker Market Earnings on Path to Recovery?

Tanker market earnings in the third quarter of 2017 are encountering difficulties, but peaking fleet growth and increased tonne-miles could see spot rates stabilize and time charter rates improve, Maritime Strategies International said.

The quarter is proving vexatious for owners still struggling with the effects of fleet oversupply, but MSI believes that changing trade patterns could help stabilise the market towards year-end and into 2018.

“With all-OPEC crude exports setting record highs in July, the cartel’s attempts at lowering production are clearly open to question. There was a reduction in flows from OPEC’s Gulf producers while China’s imports tumbled to seven-month lows in July.”

Exports are seeing a divergent trend in the group though, with African volumes of lighter grades on the rise while Middle Eastern medium/heavy crudes have been receding. China’s decline could signal the potential start of a slowdown in imports, yet the July figure was still up by 12% from a year prior and the ongoing downtrend in China’s domestic crude output should continue to lend support to imports, MSI informed.

“Though the remainder of Q3 will be weak, fleet growth has now moved past its peak which should have some stabilising effect as we look to 2018. Despite falling in June, T/C rates are set to see a modest improvement over our forecast,” Sierra Highcloud, MSI Analyst, said.

“However, liquidity is thin and should the upside expected in Q4’s spot market not materialise, the period market could move lower as owners look to protect against spot market downside,” Highcloud added.

Furthermore, other factors have affected the situation. India has been able to buy more US crude after recent upgrades which have allowed refiners to easily switch between running light and heavy crudes. African OPEC volumes of lighter grades have tracked higher while Middle Eastern medium/heavy crudes have been receding.

In Venezuela, where output has already seen a dramatic decline due to political turmoil, any possible oil-related sanctions would invariably have numerous and far-reaching impacts across the tanker market, Highcloud said.