McQuilling Services is pleased to announce the release of its 25th anniversary edition, 2022-2026 Tanker Market Outlook. This 165-page report provides a detailed analysis of oil fundamentals, global economic and geopolitical context in addition to tanker demand and supply projections across eight vessel classes. The interaction of tanker demand and vessel supply variables is processed using advanced quantitative modeling to produce a five-year spot and time charter equivalent (TCE) forecast for eight vessel classes across 24 benchmark tanker trades, plus four triangulated trades. Also included in the report is a five-year asset price outlook as well as one and three-year-time charter rate forecasts through 2026.

In consideration of the demand and supply fundamentals uncovered in our analysis, we project spot market earnings for VLCCs to average US $2,500/day in 2022 on a non-eco, no scrubber basis (US $11,000/day for ECO-designs, without scrubbers). The peak year for VLCC spot market earnings in our models has been pushed out to 2025, amid substantial supply-side support, while Suezmaxes and Aframaxes are projected to return healthier levels in 2022, each benefiting from increased deployment optimization and strong inter-regional trading originating from Atlantic Basin export centers. The years 2023 and 2024 reveal improving fundamentals for crude tankers, although we are skeptical that crude tanker earnings in 2023 will rise above cash break-even levels for most tankers, as our deep analysis reveals only marginal support to our core supply/demand balance from the forthcoming carbon emissions regulations.

The findings from our product tanker market analysis show a more promising balance of fundamentals in these segments. The strong oil demand recovery anticipated will be augmented with longer mileage routings caused by changes in regional product balances. Coupled with this healthy demand outlook, are relatively light increases on the vessel supply side, supporting non-eco spot market earnings for the core product tanker segments, which we project to outperform their crude counterparts in 2022, albeit modestly. Upward momentum on earnings is duly forecast for clean tankers in 2023, which will finally benefit from a low orderbook of VLCCs and Suezmaxes, which have been demand disruptive to clean tankers over the last couple years.

McQuilling Services’ Commercial Director, Stefanos Kazantzis commented, “We find ourselves in a familiar position with our forward calls on the market this year. Recall last January, we published a VLCC full year forecast of US $9,000/day, which at the time seemed extremely bearish, but in hindsight was the correct call. The reality for the crude tanker market heading into 2022 is it will face significant supply side pressure, despite our projected positive impact from ton-mile demand growth amid increasing refinery utilization and crude production gains, but at the same time recognizing a significant year-on-year demand decline from unwinding floating storage, but also a reduction in average mileages, particularly from the Middle East. Certainly, a very high orderbook this year will not do owners any favors and we can only hope that this year marks the beginning of an accelerated deletion cycle, to support the market in the years ahead, which in fact appear promising with the expected low delivery schedule in 2023-24 and continued gains in ton-mile demand.”

Kazantzis further added, “Product tanker markets, in continuation of our views from last year, continue to exhibit more constructive fundamentals earlier in the cycle. Last January, we were the first to call the growth of West to East naphtha flows based on our views on regional balances, and in fact, we see these West to East trades, including from the US Gulf and Europe to Asia, growing further in the coming years. Further ton-mile demand support will be added by increasing distillate length out of the Middle East, and to a lesser extent the Far East, increasing East to West activity, as well as intra-regional movements. These two are the more obvious developments, while another interesting and potentially highly positive demand development revealed in this year’s report is a consequence of the mega-Dangote refinery in West Africa. Most, if not all, market participants view this refinery as a negative to clean tanker demand; counter-intuitively, we believe the opposite to be true and support this argument in the report. Overall, we are more supportive of clean tanker earnings, although, we don’t foresee any significant premiums over the crude markets in 2022 as cannibalization of clean cargoes from crude newbuildings is still very much a negative factor as is the potential for LRs trading dirty to switch-over to clean trading.”

Finally, Kazantzis said, “A key development to watch out for this year are potential changes in asset valuations, which have been supported by high replacement costs, elevated scrap values as well as a general lack of modern inventory available for sale. We anticipate a paradigm shift to occur over the next 12-18 months, whereby inflationary pressures subside, and natural delivery dates offered by yards increase slot availability, particularly as we move into the latter part of the year and 2023. These factors may pressure contract prices according to our newbuilding forecast models, effectively removing an important support pillar for secondhand prices. The decline in asset values may be further exacerbated by increasing debt servicing costs from higher interest rates, which at the same time, will place further pressure on asset prices due to their inverse relationship.”

Marex Media