The tanker market has been on a rollercoaster ride of late. In its latest weekly report, shipbroker Allied Shipbroking said that “it has been a real rollercoaster ride for the crude oil tanker market these past 12 months, with the whole spectrum in human emotions being captured as we managed to see almost 2 complete peak-bust cycles take place in record time. Around this time last year we were seeing a market in complete extasy, with freight rates having jumped to extraordinary levels not seen since the pre-2008 boom years. The fixing frenzy that took place as part of the sanctions undertaken by the U.S. on a large number of Chinese controlled vessels, meant that tankers had started to become a highly desirable investment choice once again”.
“Yet it didn’t take long for the market to scale back down to “normality” and holding there up until we noted a sudden drop down to a state of very low crude oil prices led to a second upward surge in the tanker freight market during spring of 2020. Things have quietened back down in the freight market once again (though most would argue that it has been a bit too quiet as of late), while the “cracks” in this market’s longer-term outlook have become ever more prominent. Through all this turmoil noted over the past 12 months two things have become ever clearer as to the tanker crude oil market”, said Allied’s Head of Research & Valuations, Mr. George Lazaridis.
According to Lazaridis, “first and foremost, the prospects for liquid fuels (of which crude oil is by far the largest in importance and market share) has diminished considerably. Within a 30-year horizon, most market research tends to point towards an overall negative growth rate, with the market share against all other energy sources diminishing at an even faster rate. The low prices of late have helped in keeping oil’s competitive advantage for the time being, however, with its external costs being brought continuously to an ever prominent and unfavorable light, it will be even more difficult for it to heavily compete in the global energy mix and manage to regain “lost ground”. What’s more, is that the biggest threat of all comes from technological advances in the form of energy efficiency”.
Lazaridis added that “as the world manages to become ever more efficient in its energy use, the “new promise lands” (emerging markets) of oil consumption growth are ever more likely to never reach the peak oil consumption levels that were noted in OECD countries. This usually goes hand in hand with a focus to alternative sources of energy to oil, while the very rate of growth in energy consumption has seen a significant slow down over the past decade. Yet despite all this there is still a way to look at this market from a more favorable angle. Crude oil is quite distinctly different from most other industrial commodities. It’s heavily inelastic demand means that it tends to have smaller fluctuations in traded volumes when compared to other commodities. At the same time the very market structure in terms of supply, means that it is heavily influenced by geopolitical events and as such can be quick to see large scale market shocks in price. Given this market structure however, the oil tanker market gets a great advantage over other shipping markets”.
“In their majority, most market shocks tend to have a very favorable effect on the crude oil tanker freight market, while quite often this effect could be grand in scale (examples of which were witnessed both in 4Q2019 and during 2Q2020). All this however leaves for a highly difficult market in terms of investment security, a very fact that has been the cause behind the higher flocking of speculators into the market. Having a market with limited room for growth and highly susceptible to large scale and highly unexpectable windfalls means that the market will attract ever more high risk-seeking investors into the market”, Allied’s analysts concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide