HONG KONG: 2015 has been the “year of the tanker”, if one could claim, as the tanker market, has been the great success story of the year so far, in terms of the shipping industry, after having moved from a heavily underperforming market over to level of earnings that would have never been imagined a few years back. Yet, according to shipbroker Allied Shipbroking, “through all this euphoric sentiment there are still a whole lot of underlying troubles in the background and while we just recently managed to break through the US$ 100,000 per day barrier on some VLCC routes, recent trade fundamentals point to severe cracks in the underlying assumptions of high volume trade”.
According to Allied’s Head of Market Research & Asset Valuations, Mr. George Lazaridis, “the drop in oil prices that has been the main underlying reason for the recent boost in trade seems to have already over shot its market worth, with reports now emerging that refined product storage sites in most OECD countries have already reached close to their maximum capacities. This is in part indicative of how consumption for most oil products has not risen as sharply as the traded volumes would indicate while the high refinery utilisation, has meant that the amount of excess supply in the market has “hit the roof”.
Lazaridis said that “this leaves two main developments for the market moving forward. On the one hand we will likely have a continuation in the price arbitrage boost in trade, whereby product tankers receive a boost in their trade as the gap in prices between regions widens rapidly. On the other hand, we will likely start to see a slide in demand for crude oil shipments by traders moving forward, as they start to more closely reflect the actual market demand levels. This is not to say that demand has not spiked thanks to these low oil prices, rather it seems as though the elasticity in demand has been slightly miscalculated with consumption having risen slower than what the freight market has reflected over the past 12 months”.
As per Allied’s analyst, “this later point will likely lead to two eventualities of its own. Prices for crude oil is going to be under consider-able pressure over the coming months, something that has been reflected in the amount of speculators selling out of their long positions on crude oil, while an imminently bigger slide in investment in the oil sector should cap the amount of production in the market. This would lead to a second consecutive year of dropping oil investments, something not seen for more than two decades”.
