Viewpoint: Crude prices buoy Americas tankers

OREANDA-NEWS. December 23, 2015. Rising global crude oil consumption is expected to keep tanker rates elevated in the Americas during the first half of 2016.

Impacts stemming from the completion of the Panama Canal expansion, the reversal of the US crude oil export ban and the lifting of Iran trade sanctions will be marginal in the opening months of next year.

Opec's strategy of maintaining market share by maintaining crude output levels despite lower prices has pressured oil to multi-year lows, and spurred consumption. Extension of that strategy would weigh further on prices and lift resistance to further demand growth, extending demand for tankers to move the crude oil in turn.

Countries in Asia-Pacific are expected to opportunistically grow their strategic petroleum reserves, capitalizing on weak crude prices and supporting tanker demand.

A high number of newbuilding deliveries scheduled for next year will weigh on the market toward the end of the year. "People are concerned about fleet growth," said UBS shipping analyst Spiro Dounis. The VLCC fleet will expand roughly 10pc next year but the large majority of that additional capacity will only enter the market near the end of the year, he said.

"Couple [the low number of deliveries in the first half] with Opec's market share push and a full-out lifting of quotas, and I'm expecting a very strong first half for the crude tanker markets, barring an extraordinary demand destroying event," said Evercore shipping analyst Jon Chappell.

Lifting the Iranian sanctions will release more crude and more tonnage onto the market. But the entry of the tonnage into the market will be incremental, much like the ramping up of crude production. The VLCC fleet of the NITC (National Iranian Tanker Company), though sizable – at about 42 vessels, will require dry docking and will need to pass vetting to be considered trade-worthy.

The impact of the Panama Canal Expansion, 95.5pc complete according to the Panama Canal Authority, will include some additional route possibilities for Aframax and partially-laden Suezmax tankers. Some of these include Ecuador-USGC and Caribbean-US west coast Aframax movements. "The expansion will shake the market up a little bit. But won't turn it on its head," said Dounis.

A reversal of the US export ban could mean raised demand for Aframax vessels in the Americas. "We expect an initial flurry of activity in US exports, most probably on Aframaxes. This will be followed by a period of slower activity, the steadiest trade being to Latin America, some volumes to Europe, and occasional moves to the Far East," said head of research at shipbroker MJLF Court Smith.