The tanker market is geared for a transition period in 2018, as tonnage oversupply and the oil price fluctuations are bound to keep adding pressure at freight rates. In a recent note, shipbroker Intermodal said that over the course of 2017, market fundamentals have been casting a shadow of uncertainty over 2018’s performance.

“In a rather unconventional development, despite the fact that earnings for the sector have continued to move lower this year, tanker newbuilding orders have actually increased year to date by 17%, compared to 2016. The most logical explanation for this has been the admittedly attractive newbuilding prices that still continue to tempt a number of owners into ordering despite a rather challenging freight market. When it comes to SnP activity, things have been rather steady; we are counting around 340 SnP tanker transactions so far, compared to the 333 transactions we have on record for the same period in 2016”, Intermodal noted.

According to the shipbroker, “tanker asset prices have consequently moved down this year as well, with tonnage older than ten years naturally noting the biggest declines in value. Saying that, there has been some rather decent resistance especially in prices for more modern vessels, which of course could be succumbed if pressure on earnings resumes in 2018. Indeed, taking into account the scheduled deliveries next year and the fairly young average age of the tanker fleet that sets a rather low ceiling to the number of potential demo candidates, we wouldn’t be surprised to see way more attractive second-hand prices next year and a consequent spike in SnP interest/activity”.

Intermodal’s Research Analyst, George Panagopoulos said that “as far as oil prices are concerned, the latest decision taken by OPEC and its partner nations, who have agreed to extend crude output cuts until the end of next year, has offered additional support to the commodity. Following this, analysts are now expressing a more positive view for next year. Goldman Sachs is optimistic on global oil demand growth and actually expects the output cuts to end earlier, in Q3 2018. Moreover, Credit Suisse raised its 2018 oil price forecasts citing strong OPEC adherence to pledged output cuts. A survey recently conducted by Reuters also showed that the rally on oil prices is expected to continue in 2018. Rounding up the positive expectations, OPEC anticipates oil demand to rise by 1.51 million bpd next year, up 130,000 bpd from previously, to 98.45 million bpd”.

He added that “despite the very positive vibe in the investing community as far as the price of the commodity is concerned, U.S. production continues to cast a shadow over bullish sentiment. After all the higher prices go the more sense it makes for US to increase its production from a commercial point of view and last month’s US crude inventories revealing the highest monthly production since 2015 is solid proof of that. This is not bad for tankers though, as a balanced oil price is naturally much more appealing and supportive of demand”, Panagopoulos concluded.