HONG KONG: The Aframax tanker market has been among the beneficiaries of the current rally, as Aframax owners in the West have seen several spectacular spikes this year, with TCE earnings on the benchmark TD7 trade jumping as high as $100,000/day in June. Although the market softened during the third quarter, the fourth quarter started on a promising note. As shipbroker Gibson noted, freight rates firmed in October and so far in November, being supported by robust trading activity, weather related delays and disruptions in the Black Sea/Mediterranean and more recently uncertain itineraries for several tankers in the North Sea, all of which helped to tighten availability.
According to Gibson, “freight rates could rise further as we head into the winter, as typical weather related delays and disruptions during the season help to generate stronger returns, particularly for ice class tonnage. The highest ice class premium usually develops between February and April, when ice conditions are at their worst. Although weather conditions in NW Europe have been mild so far, the Hydrometeorological Centre of Russia expects the weather during winter months around the Black and the Baltic Seas to be in line with historical averages”, said the shipbroker.
However, Gibson warned that beyond the upcoming winter season, a number of factors point to deteriorating conditions in the Aframax market. Supply growth in the combined LR2/Aframax fleet is expected to accelerate notably next year. Prospects for demolition are highly limited, while 68 deliveries are scheduled to enter trading operations in 2016 and 60 in 2017. This compares to 38 new additions this year and just 19 back in 2014. Although most of these tankers are destined for clean trade, if the crude tanker market continues to outperform the clean sector (as has been the case this year), many owners are likely to opt for the dirty trade. The picture is similar for iceclass tonnage. The current orderbook for ice class LR2/Aframaxes stands at 14% of the existing fleet, with nearly all tankers trading dirty. Just 2 deliveries are scheduled for 2016; however, deliveries will jump to 8 units in 2017, followed by another 2 in 2018”, said Gibson.
According to the shipbroker, “on the demand side, developments for Aframax tonnage in NW Europe and in the Black Sea/Mediterranean in the near term are largely linked to prospects for Russian crude exports in the West and events in Libya. It is unlikely that we will see sizable increases in crude export volumes out of these regions any time soon. The situation in the North African country remains highly unstable, while the Russian Federation is likely to send even more crude East at expense of Western markets”.
As a result, Gibson maintains the notion that ‘Aframax earnings are likely to come under downwards pressure due to the anticipated large scale increase in supply, coupled with limited growth prospects out of the main regional export outlets. However, this year the biggest factor behind the surge across all crude tanker markets has been OPEC’s decision against production cuts and the resulting massive overhang of crude supply, which has supported global seaborne trade and delays/inefficiencies in tanker transportation. With expectations that excess crude supply will remain a feature of the market for a while, will this be sufficient for Aframaxes to sail through the rough waters ahead?”, wondered the London-based shipbroker.
