Oil Tanker Market Outlook - Intertanko Tanker Market Outlook –April 2017 © Maritime Strategies...

The Tanker Market Cycle – Evolution and Outlook

Intertanko HMP - April 2017

Tim Smith – Senior Analyst

[email protected]

+ 44 (0)207 940 0078

mailto:[email protected]

© Maritime Strategies International www.msiltd.com2

Agenda:

1. Understanding the tanker market cycle

2. Key drivers of tanker market fundamentals

3. Policy and price: geopolitical risks and scenarios

MSI Tanker Market Outlook – April 2017


1. Understanding the tanker market cycle

MSI Tanker Market Outlook – April 2017

Tanker Spot Earnings Indices


• Tanker spot markets, represented by composite indices, have been trending downwards since the start of 2016

• Some stabilisation from lows seen in Q3 16 but conditions remain poor

*MR Europe-US, LR1 ME-Japan

**VLCC ME-Japan, Suezmax W. Africa-Europe, Aframax Med.-Med.-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jan

-12

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Ju

l-13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Ju

l-14

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

May-1

5

Ju

l-15

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-1

6

Ju

l-16

Sep

-16

No

v-1

6

Jan

-17

Mar-

17

Index Jan 15 = 1

Products Index* Crude Index**

1 Yr T/C Rates – Long-Term History


• The tanker market typically moves together

• 1 Yr T/C rates across a wide range of segments are highly synchronised

0

10

20

30

40

50

60

70

80

90

100

Q1 9

5

Q4 9

5

Q3 9

6

Q2 9

7

Q1 9

8

Q4 9

8

Q3 9

9

Q2 0

0

Q1 0

1

Q4 0

1

Q3 0

2

Q2 0

3

Q1 0

4

Q4 0

4

Q3 0

5

Q2 0

6

Q1 0

7

Q4 0

7

Q3 0

8

Q2 0

9

Q1 1

0

Q4 1

0

Q3 1

1

Q2 1

2

Q1 1

3

Q4 1

3

Q3 1

4

Q2 1

5

Q1 1

6

Q4 1

6

Q3 1

7

Q2 1

8

$ k/Day

MR LR2

Suezmax VLCC

VLCC Contracting and Earnings


• Smoothing both VLCC contracting and T/C earnings as 3-year moving average shows the long-term link between freight market conditions and tanker ordering

• This relationship contributes to the cyclical nature of the tanker market

0

5

10

15

20

25

30

5

15

25

35

45

55

65

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mn Dwt$ k/Day

VLCC 1 Yr T/C VLCC Contracting (RH Axis)

OPEC ME/WAf Production vs. VLCC 1 Yr T/C Rates


• Green lines show positive correlation between VLCC market and OPEC production

• Red arrows show contraction in rates, typically accompanied by pressure from the fleet

0

10

20

30

40

50

60

70

80

90

100

18 19 20 21 22 23 24 25 26 27 28

$ k/Day

Mn b/d

1997-2008

2009

2010

2011

2012

2013

2014

2015

2016

2017


2. Key drivers of tanker market fundamentals

MSI Tanker Market Webinar – March 2017

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-30

-20

-10

0

10

20

30

40

50

60

70

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Mn Dwt

Deletions Deliveries End of Year Fleet Growth (RH Axis)

Fleet – Net Changes and Growth


• 10+ K Dwt tanker fleet (includes crude and products) seeing strong rate of growth

• Driven by high delivery levels, whilst scrapping increase not guaranteed

Fleet Growth by Segment (Year Avg. Capacity)


• Tanker fleet growth is being driven by large vessels in both crude and products sectors

• LR1/2 fleet averaging close to 9% growth for 2-3 years, Suezmaxes well above average

-2%

0%

2%

4%

6%

8%

10%

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

VLCC Suezmax LR1/2 Other Total (10+ k Dwt) Average

Oil Consumption and Price


• Oil price under sustained pressure, world has recalibrated to much lower price range

• Oil consumption growth stable and positive, but subject to macro and price shocks

0

20

40

60

80

100

120

140

-2

-1

0

1

2

3

4

5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$/bbl%

World Oil Consumption Growth Oil Price (MSI Basket, RH Axis)

Refinery Capacity Expansion


• Asia and Middle East dominate incremental growth in refinery capacity expansion

• Further consolidation could occur in OECD regions, potentially accentuated by IMO sulphur regulations

-60

-40

-20

0

20

40

60

80

100

120

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

MnTpa

China Asia excl. China Middle East+Africa Europe+FSU Americas

OPEC Cuts


• OPEC agreed in November to cut 1.2 Mn b/d of production in the first half of 2017

• This was the first agreement to cut production since the wake of the global financial crisis in 2008

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Ja

n-1

6

Fe

b-1

6

Ma

r-1

6

Ap

r-16

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Se

p-1

6

Oc

t-1

6

No

v-1

6

De

c-1

6

Jan

-17

Fe

b-1

7

Mn b/d

Africa, Latin America Middle East

Crude Imports – Incremental Change


• China remains key driver for crude trade growth but import expansion slowing

• Other regions such as Europe and US expected to act as a drag on crude imports

-100

-50

0

50

100

150

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

MnTpa (yoy Change)

China Asia excl. China

Europe Americas

Other

Products Imports – Incremental Change


• Product imports more diverse than crude – less reliant on Asia

• Asia still very important but diesel imports into Europe play a large role in underpinning the market

-40

-30

-20

-10

0

10

20

30

40

50

60

70

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

MnTpa (yoy Change)

Other Asia Europe Americas

Oil Trade Growth


• Crude and products trade growth appear to have realigned and decelerated after the sharp upturn in 2015

• MSI positive on outlook for next 2-3 years

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

% Growth

Seaborne Crude Cargo Seaborne Products Cargo

Tanker Supply, Demand and Employment Rate


• Tanker market is being driven down by high rates of fleet growth and relatively muted demand.

• These conditions reverse those seen in 2014/15, generating a volatile cycle over the last 2-3 years

86

87

88

89

90

91

92

93

94

95

0

1

2

3

4

5

6

7

8

9

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

%%

Supply Demand Employment Rate(RH Axis)

Tanker 1 Yr T/C Rate Forecast


• The market employment rate drives MSI’s freight rate forecast, shown as 1 Yr T/C

• We expect 2017 to be the nadir of the market with a sustained recovery beginning in 2018

0

10

20

30

40

50

60

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ k/Day

MR LR1 Suezmax VLCC

Aframax Tanker Earnings and Prices


• Newbuilding prices are moving towards an anticipated trough in 2017

• Pressure on asset prices coming from both the newbuild and freight markets

0

5

10

15

20

25

30

35

40

45

0

10

20

30

40

50

60

70

80

90

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ k/Day$ Mn

Newbuild 5 Yr Old 10 Yr Old 1-Yr T/C Rate (RH Axis)

Trough to Trough: 2013-2017 Relative Change


• Looking at the ‘trough-to-trough’ performance across a range of sizes for earning and asset prices

• Crude tankers have arguably seen less pressure from freight market environment

-20%

-10%

0%

10%

20%

30%

40%

MR

LR

1

Su

ezm

ax

VL

CC

Newbuild 5 Yr Old 1 Yr T/C


3. Policy and price: geopolitical risks and scenarios

MSI Tanker Market Webinar – March 2017

Enhanced OPEC Cut Scenario


-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Ja

n-1

6

Fe

b-1

6

Ma

r-1

6

Ap

r-1

6

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Se

p-1

6

Oc

t-1

6

No

v-1

6

De

c-1

6

Ja

n-1

7

Fe

b-1

7

Mn b/d

Africa, Latin America Middle East

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

30

50

70

90

110

130

150

2012

2013

2014

2015

2016

2017

2018

$/bbl

Oil Price Base CaseOil Price ScenarioWorld Oil Consumption Growth Base Case (RH Axis)World Oil Consumption Growth Scenario (RH Axis)

0

5

10

15

20

25

30

35

40

45

50

2012

2013

2014

2015

2016

2017

2018

$ k/Day

LR2 Base Case

LR2 Scenario

VLCC Base Case

VLCC Scenario

-30

-20

-10

0

10

20

30

US

Ba

se C

as

e

ME

Ba

se

Ca

se

US

Sc

en

ari

o

ME

Sc

en

ari

oMnTpa

2017 2018

1. 2.

3. 4.

0

200

400

600

800

1000

1200

1400

1600

1800

0

20

40

60

80

100

120

140

Ja

n-1

2

Ma

r-1

2

Ma

y-1

2

Ju

l-1

2

Se

p-1

2

No

v-1

2

Ja

n-1

3

Ma

r-1

3

Ma

y-1

3

Ju

l-1

3

Se

p-1

3

No

v-1

3

Ja

n-1

4

Ma

r-1

4

Ma

y-1

4

Ju

l-1

4

Se

p-1

4

No

v-1

4

Ja

n-1

5

Ma

r-1

5

Ma

y-1

5

Ju

l-1

5

Se

p-1

5

No

v-1

5

Ja

n-1

6

Ma

r-1

6

Ma

y-1

6

Ju

l-1

6

Se

p-1

6

No

v-1

6

Ja

n-1

7

# Rigs$ k/Day

Brent

WTI

Total US Oil Rig Count (RH Axis)

0

50

100

150

200

250

300

350

400

450

500

400

450

500

550

600

650

700

750

800

850

900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

MnTpaMnTpa

US+Canada Crude Oil Production

US+Canada Crude Exports (RH Axis)

0

2

4

6

8

10

12

Imports Exports

Mn b/d

Products Crude

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Can

ad

a

Sau

di

Ara

bia

Ven

ezu

ela

Mexic

o

Co

lom

bia

Iraq

Ecu

ad

or

Nig

eri

a

Ku

wait

An

go

la

Mn b/d

US Oil Production – Trump, Drilling and Exports


1. 2.

3. 4.

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

$/T$ k/Day Vessel

Earnings

Containership (1.1 k TEU)

Dry Bulk Carrier (75 k Dwt)

Crude Oil Tanker (Aframax)

HFO Bunkers (RH Axis)

0

200

400

600

800

1000

1200

1400

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

$/T

HFO 380 MGO Brent

-15

-10

-5

0

5

10

15

20

25

30

2015

2016

2017

2018

2019

2020

2021

MnTpa

US+Canada Latin America Europe Africa Asia excl. China

0

10

20

30

40

50

60

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

$ k/Day

LR2 Base Case LR2 Scenario

VLCC Base Case VLCC Scenario

Bunker Fuel Regulations


1. 2.

3. 4.

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Oil Tanker Market Outlook - Intertanko Tanker Market Outlook –April 2017 © Maritime Strategies...

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Transcript of Oil Tanker Market Outlook - Intertanko Tanker Market Outlook –April 2017 © Maritime Strategies...