The unparalleled scale of tankers carrying sanctioned crude oil from Iran or Venezuela has begun to actively hurt demand for compliant crude tankers, claimed Frontline in a market analysis issued last week, together with the company’s second quarter results. The shipowner stated, in astonishing fashion, that “in recent months media and research agencies have pointed to US sanctions against Iranian and Venezuelan oil exports bringing about a parallel oil market, where sanctioned crude oil is actively traded. The vessels involved sail outside of the regulatory framework set by IMO, often operating without insurance and disobeying the common safety regulations the rest of the industry embraces. Activities of this sort have regrettably always been a challenge in the shipping industry, but the volume of such activity has previously been negligible. Now, the foregoing activity seems to be taking place on a scale which both severely hurts the demand for freight in the compliant tanker market and distorts the global oil trade, displacing significant volumes of compliant oil” Frontline said.

According to the tanker owner, in terms of supply, “new ordering for tankers has been muted throughout the second quarter of 2021, and the overall orderbook in absolute DWT terms continues to be near 25-year lows, not reflecting the size of the oil market nor the age profile of the existing tanker fleet. According to industry sources, the average age of the VLCC fleet at the end of the second quarter of 2021 was just over 10 years, the oldest average age seen for close to 20 years.

This is the great paradox of tankers, considering the tightening regulatory framework the industry faces, the high focus on emissions and the environmental implications of the business we are in. Looking at the asset classes to which Frontline is exposed, namely VLCC, Suezmax and LR2 tankers, approximately 7 % of the global fleet will be over 20 years of age by the end of 2021. When a tanker vessel is over 20 years of age, it will struggle to find employment with legitimate charterers”, Frontline noted.

Demand-wise, Frontline noted that “global oil consumption averaged 96.7 million barrels per day (“mbpd”) during the second quarter of 2021 according to the Energy Information Administration (“EIA”), 2.1 mbpd higher than in the first quarter of 2021. Global oil supply increased by 2.3 mbpd during the second quarter, averaging 94.9 mbpd. World oil balances indicate we continued to draw from crude oil inventories during the second quarter, albeit at a slower pace than in the first quarter of the year. Asset prices have continued to appreciate throughout the second quarter of 2021, fueled by healthy activity in the container markets in addition to firm activity for LNG, LPG and Chemical vessels. Steel plate prices in Korea reached $1,000 per ton in June 2021 according to industry sources, an increase of approximately 37% year to date”.

Finally, according to Frontline, “the outlook for the tanker market continues to look constructive and the fundamental picture has become even more pronounced as few tankers have been ordered and available newbuilding capacity is scarce for the next three years. However, the pace of the recovery in global oil demand and trade is being curtailed by the rapid spread of the Delta variant of Covid-19. We do remain optimistic going forward as the current market conditions for tankers are not sustainable. Frontline is not strangers to challenging markets, and with our fuel-efficient modern fleet we continue to focus on positioning ourselves towards a recovery”, the shipowner concluded.

Marex Media