It is never ideal if you own a fleet of crude tankers and the world’s oil producers remove millions of barrels of cargo from the market to avert a glut. Nor is a collapse in charter rates normally the best news.
While both those things happened in the past few months, the people paid to evaluate the shipping industry’s prospects are actually turning a little more bullish.
The analysts’ optimism stems from a conviction that the world’s refineries will have to process more crude to supply ships with new kinds of fuel next year under rules set out by the International Maritime Organization (IMO).
On top of that, historic trade flows are at risk of disruption as OPEC and allied producers curb output of one type of crude at a time when US drillers boost supplies of another.
West Texas Intermediate on Friday rose 0.2 percent to US$52.72 per barrel, down 4.6 percent for the week.
Brent crude on Friday settled at US$62.10 per barrel, up 0.8 percent for the day, but down 1 percent for the week.
“Despite the latest meltdown, we remain bullish about the tanker market mainly because we believe IMO 2020 requirements will push for oil production growth, which will support freight rates” from the second half of this year, said Espen Fjermestad, an analyst at Fearnley Securities AS in Oslo, Norway. “Refineries will need to increase runs to meet increased demand.”
The Baltic Dirty Tanker Index, a wide measure of charter rates mostly for moving crude, has plunged almost 30 percent in the past three months.
OPEC and allied producers late last year agreed to cut more than 200 million barrels of total output through June.
Undeterred, shipping analysts surveyed by Bloomberg have, since early November last year, raised their forecasts for what every class of mainstream crude carrier will earn this year.
The freight market would benefit from IMO 2020 later this year, firms including Clarksons Platou and Evercore ISI said.
The measures, designed to limit sulfur emissions, are expected to boost the amount of crude being processed, because refineries will need to make more diesel-like fuels.
Heavier crude is more suited to making IMO-compliant fuel.
Refineries produce about 25 to 30 percent of middle distillates using light US oil, compared with about 35 percent from heavy crude, Fjermestad said.
Tanker spot rates would continue to decline in the first half of the year because of oil supply cuts and fleet growth, said Jonathan Chappell, an analyst focusing on marine transportation equities at Evercore ISI.
After that, things should improve, he said.
“With refinery utilization rising and newbuild deliveries set to slow, we are expecting a relatively strong snapback in rates, which is likely to be exacerbated by expected trade route disruption associated with the preparation for the onset of IMO 2020,” he added.
Additional reporting by Reuters
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