Viewpoint: Americas MR tankers strong 1H16

OREANDA-NEWS. December 24, 2015. Slowing fleet growth and strong refined product output aimed at export markets could support strong freight rates in the medium-range Americas tanker market during the first half of 2016. Refinery maintenance will set the pace for MR chartering.

"The same tonne-mile drivers of the second half of 2015 should be prevalent in the first half of next year, although any material refinery maintenance delays in 2015 owing to strong global margins could lead to some elevated turnaround times in 2016," said Jon Chappell, a shipping analyst at Evercore. Heavy refinery maintenance results in reduced cargoes available for export. Competition among shipowners to secure the few available cargoes then pulls freight costs down.

Anticipated strong demand for exports of US refined product into longhaul markets could support the MR spot market. Longhaul journeys that continue out of the US Gulf coast, including naphtha to Asia-Pacific, gasoline to west Africa and distillate to the Pacific coast of South America, serve to stretch the MR tanker fleet.

Demand for gasoline moves to Mexico may drop off slightly, said Chappell. Overturning the US crude export ban may allow Mexico to import more US light crude, which would yield a higher portion of gasoline. But the USGC-east coast Mexico MR trip is so short that a dent in its frequency would have a minor impact on overall tonne-mile demand.

Demand for distillate movements along the most heavily-traded transatlantic route to Europe should hold steady. Although nearly full distillate stocks in northwest Europe have complicated the arbitrage from the USGC recently, and even resulted in the employment of some long-range (LR2) vessels for floating storage, inventories are expected to drain and flow inland into supply-constrained Germany, said MJLF head of research Court Smith.

On the supply side, MR tonnage capacity will expand roughly 6pc, said Spiro Dounis, shipping analyst at investment bank UBS. While the number of new deliveries from this year, when the orderbook peaked, and next year will put some downward pressure on chartering rates, capacity expansion will then decelerate. Moreover, fleet growth next year for the larger-size product tanker segments, including LR1s and LR2s, will outstrip that of MRs, said Dounis.

"I believe we will continue to have seasonal volatility, but that 2016 will prove to be just as good if not a better year for product tankers than 2015," said Chappell.