“Our belief in a structurally driven strengthening of the tanker market from the second half of 2021 stands firm. In addition, we are now also seeing short disruptions having a quick effect on the market. This is a clear indication that, despite everything, we have a market in relatively good balance” says Kim Ullman, CEO of Concordia Maritime.
In recent times, we have once again seen how quickly conditions can fluctuate in the tanker market – due to changes in supply or transport flows of oil. We saw it during the Evergreen situation in the Suez Canal and the Colonial Pipeline cyberattack, which cut off the flow of oil pipelines between the Gulf of Mexico and the US East Coast. Almost half of the consumption of refined oil products on the East Coast is supplied by these pipelines and in the space of just a few days the Atlantic market for product tankers had risen by almost one hundred percent – to then fall back again after just a short period of time. And this happened with the American “driving season” on the near horizon. Fears of gasoline shortages led to long queues and more than 12,000 gas stations in the South ran out of fuel.
Moving towards a market in better balance
Looking at the longer-term development of the market, we maintain our belief that it will return to balance. One of the main drivers is rising oil consumption:
- The world currently consumes about 96 million barrels a day, but only producesabout 94 million barrels a day.
- This is what has finally brought stocks down to the 5-year average.
- To avoid any further depletion of stocks, production now needs to increase by about 2 million barrels per day – and we will see this from OPEC+ over the next 3 months.
- In addition, we also expect to see oil demand gradually continuing to rise from 96 MBD to 100 MBD as we enter the second half of 2021.
Vaccinations and incentive packages
The fact that we are now seeing a gradual return to more “normal” consumption of oil is due to developments in the external environment. Mass vaccination against Covid-19 is progressing strongly in many parts of the world and, together with the incentive packages already implemented or about to be made available, this is driving increased mobility, consumption and industrial production.
In the United States, the number of air travellers at the end of March 2021 was double that of a year earlier. It is obviously impossible to predict the pace at which this trend will continue, but the fact is that the vaccine is now here and means that many will want to travel and meet up again.
Clouds of concern
Of course there are clouds of concern – there always are. In addition to causing great human suffering, the development of the coronavirus pandemic in India is also impeding the recovery of the country’s demand for oil. In addition, rising tensions in the Middle East are currently creating uncertainty. In the tanker market, repealed sanctions against Iranian tankers could lead to an increase in available tankers, which to some extent could affect the freight rates.
An even stronger 2022
Forecasts for 2022 indicate further market improvements, driven by continuing growth in demand for oil and therefore also for tanker transportation. Demand for crude oil and product tankers is expected to increase by 4-5 percent in 2022, returning to just above 2019 levels. At the same time, growth in the tanker fleet is expected to be low. In recent weeks, we have seen an increase in orders for container ships in particular – but it is still the case that very few new tankers are being ordered. Increased demand for shipbuilding capacity has now led to longer delivery times. It would normally take 1.5 years to get a ship delivered (after ordering) – it now takes 2–2.5 years. All in all, this is likely to help prolong the strong market that we, and many others, now see before us.
Just as with the pandemic, it is all about persevering and hanging in there. Better times are waiting around the corner.