The Suezmax tanker market has been suffering for quite a while. However, the negative outlook which has come as a result of tonnage oversupply, could be eradicated in a couple of years’ time, signalling a reversal of fortunes. In its latest weekly report, shipbroker Charles R. Weber, said that “during the first half of the 2010s, a surging Suezmax fleet against tighter fundamentals in alternative crude tanker size classes saw rising levels of encroachment in non‐traditional regional markets usually serviced by larger and smaller counterparts. The geographically disjointed nature of these markets decreased Suezmax efficiency rates, helping to minimize earnings downside in soft markets and enhance earnings in stronger markets”.
The shipbroker added that “since the middle of the decade, further demand losses in traditional markets – particularly the West Africa region – and stabilizing overall demand in non‐traditional markets, have meant fewer options for owners to cope with a fresh round of fleet growth. There are presently 502 Suezmax trading units, representing a net increase of 17.3% since the start of 2015 and a net increase of 44% since the start of the decade. The present balance paints a somber picture for Suezmax owners – and that the disjointed supply demand balances has also contributed to an erosion of asset values certainly doesn’t help. Though fleet growth levels are projected to moderate, from a net gain of 9.7% during 2017 to 3.2% during 2018, demand levels appear likely to lag, suggesting that 2018 will remain a challenging year”.
According to CR Weber, “by 2019, however, the Suezmax fleet will likely enter into a negative fleet growth territory as aging units reach likely phase‐out ages. By then, demand dynamics should also be firmly more supportive. In the West Africa market, Suezmax demand during 2016 was hit heavily by large‐scale forces majeure in Nigeria and lower volumes sustained during 2017 as Asian buyers increasingly looked to the region to make up for OPEC supply cuts heavily distributed to the Middle East, boosting the VLCC class’ coverage of regional supply. Eventually, this situation should abate, allowing Suezmaxes to command a better share. Elsewhere, US crude exports have been rising and benefitting all crude tanker size classes with Suezmaxes capturing 28% of this trade. As US crude exports continue to mature through the end of the decade, the associated gains for Suezmaxes should help to lead to a fresh and substantial geographic diversification of trades” CR Weber concluded.
Meanwhile, in the VLCC tanker market, the shipbroker said that it “commenced with a measure of softer sentiment at the start of the week on uncertainty around the Middle East supply/demand balance and expectations that the week’s demand levels would be muted amid industry events in Dubai. As the week progressed, however, demand levels exceeded expectations and participants took stock of what appears increasingly likely to be a more active November Middle East program, prompting rates to pare earlier losses and conclude largely unchanged from a week ago. There were 26 fixtures in the Middle East market this week, one more than last week. Of this week’s tally, just two were covered under COAs vs. nine last week, meaning that charterers were actively working more cargoes, which positively influenced sentiment. Demand in the West Africa market was softer, however, as charterers were working fewer cargoes following two successive weeks of strong demand. There were five fixtures concluded there, off from nine last week. In the Atlantic Americas, US crude export cargoes were level at recent highs of two per week while an additional two fixtures materialized in other loading areas in the region, representing a collective gain of one fixture from last week”, CR Weber said.
It added that “with sentiment starting to turn positive and fundamentals supportive, we expect that after spending nearly a month range bound, rates will start to command fresh upside during the upcoming week. For its part, the view of surplus vessels at the conclusion of the November Middle East program stands at 9 units (one more than last week’s view). Last year’s November program concluded with eight surplus units and AG‐FEAST TCEs for the month averaged ~$51,472/day. Successive availability declines occurred during the December’166 program, guiding TCEs to ~$65,284/day. As availability replenishment is likely to decline during the coming weeks as units servicing recent long‐haul demand will take longer to reappear than usual, the 4Q17 structure does not appear much different. At present, AG‐FEAST TCEs stand at an average of ~$30,518/day – near levels they moved to as the Middle East surplus narrowed from 29 units at the conclusion of the September program to 14 units at the conclusion of the October program”, CR Weber concluded.