d'Amico Bullish on Product Tankers

 

The key drivers that should affect the product tanker freight markets are (i) global oil supply (ii) the crude oil price and refinery margins (iii) demand for refined products and (iv) the product tankers fleet growth rate. 

 

Some of the factors that could drive a recovery in the product tanker market in the medium-term are detailed below:

 

The International Energy Agency, in its 2017 Oil Market Report (OMR), published in March 2017, forecasted annual global demand growth to average 1.2 million b/d, or 1.2% per annum, from 2016-2022, corresponding to an increase in the period of 7.3 million b/d. From an average of 96.6 million b/d in 2016, global demand is expected to rise to 103.8 million b/d by 2022.

 

According to the IEA, the transport and petrochemical sectors account for the majority of the forecasted growth in oil demand up to 2022, at just under one-half and just over one third, respectively.

 

From 2016 to 2022, non-OECD countries will account for the majority of the forecast growth. A modest net decline in demand is expected in the OECD area due to slower economic growth and higher vehicle efficiency. Non-OECD oil demand rises by 8.5 million b/d, while OECD contracts by a net 1.2 million b/d over the forecast period. By 2022 non-OECD demand will be 28% larger than in the OECD.

 

The International Maritime Organisation (IMO) has mandated that from 2020 vessels use marine fuels with less than 0.5% sulphur content outside the Emissions Control Areas (ECA), down from the current standard of 3.5%. This new regulation is likely to significantly increase demand for ultra-low sulphur distillates. Since, this fuel cannot be produced in all areas and since it is unlikely that sufficient investment is available to upgrade existing refineries, a large portion of the pent-up demand for these products will have to be met by imports. This could structurally support demand for product tankers.

 

According to Clarksons total Seaborne volume of petroleum products has been growing at 4.1% CAGR since 2000 driven by refinery expansion and throughput.

 

The IEA expects refinery capacity to grow by 7 million b/d by 2022. Most of the additions are planned in the Middle East and Asia, in particular in China and India. In the IEA’s March 2017 OMR forecast, project cancellations in Brazil dramatically reduce South America additions.

 

Asia is already a net importer of Naphtha and is expected to add gasoline and diesel to its product imports basket. While Middle Eastern refinery throughput will cover some of this requirement, Asian importers will have to look to US and European markets to secure the needed products.

 

Seaborne trade thrives on the existence of mismatches – in the oil products sector these can be in any given country driven by differences among the types of products produced and demanded, the types and quality of oil products produced by refineries, and the margins achieved by refineries due to the different prices of crude oil used, of the energy consumed and of their technological sophistication. The global refinery map is constantly changing, leading to product supply imbalances between regions. As these mismatches grow product tanker demand will increase.

 

According to Affinity Shipping there are 31 ship currently under construction that will not be delivered this year.