Supply Scenarios and their Impact
April 30, 2021
We receive a lot of questions from colleagues and clients regarding the current state of the tanker market and, of course, the outlook we see for the short and mid-term. In short, our analysis shows that the current tanker market is essentially in the hands of owners and their decisions on how to develop their fleets going forward.
To reach this finding, we looked at different tanker supply scenarios with the VLCC market as a reference, this time wanting to provide a simple visual that can tell a cohesive story. In this analysis, demand and supply data in the VLCC sector were converted to VLCC-equivalent units and three different supply scenarios were taken into consideration.
With OPEC+ gradually opening the taps and demand rebounding globally supported by vaccine rollouts, tanker demand is expected to recover from the current depressed level, moving in the 2nd half. VLCC demand especially will show a major increase, which is likely to be sustained for at least the first half of the year (Figure 1).
Despite that, the true impact on tanker freight and earnings is likely going to be determined by the supply side behavior. In a scenario where deliveries, drydocking, floating storage and other supply modifiers remain unchanged and no VLCCs get deleted, we see that the projected curve overlaps and later surpasses that of demand (blue versus black line in Figure 1). This effectively means that the current low-freight environment will be sustained in the future.
On the opposite side, by performing the same calculations but taking into consideration our projected deletions for 2021 and 2022 we see how the VLCC-equivalent supply curve is starting to come significantly lower than the demand curve (grey line in Figure 1). This will effectively translate into freight rates and earnings increasing towards 4Q 2021 and well into 2022. Lastly, we made a “mid-market scenario” considering the current low tanker scrapping, where only 25 VLCC get deleted per year, lies somewhere in the middle, still allowing rates picking up on the same time period (orange line in Figure 1).
Figure 1 – Different VLCC Demand/Supply Scenarios
Source: McQuilling Services
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