Increasing production of oil and a raised demand forecast have provided further good news to an already firm crude tanker market and brightens the skies in product and chemical trades too, shipping analysts in Norway said.
“IEA raises oil demand growth estimate for 2015 and points to increasing OPEC production, both highly positive to the total tanker space,” said Nicolai Dyvik, Petter Haugen and Oyvind Berle, shipping analysts at DNB Markets in Oslo. The agency increased its demand forecast by 90,000 barrels per day (bpd), to 93.6 million bpd. This is 60% higher than its previous growth forecast, with a cold 1Q15 in the northern hemisphere and recovering global economy driving the demand.
In our recent research we have argued for both upside potential on demand growth for 2015 (and 2016-17) and we have also highlighted the potential for OPEC (in effect Saudi Arabia) to release spare capacity in a strategic response to the very high non-OPEC supply growth, led by the US, seen over the past years,” they said in a daily market report emailed to IHS Maritime.
“In addition to this the Iran-situation is also representing potential upside to the crude tanker space as a lifting of sanctions could release as much as 1 million bpd of global supplies (we believe it would add about 0.6-0.7 million bpd, still a significant addition). The strong supply side in combination with very high global inventories of oil is also improving the possibility for the contango to widen and floating storage could easily come back into play,” they continued.
“Higher global oil demand growth met by increased supplies from OPEC is a best-case outcome for the crude tanker space as OPEC supplies more or less are 100% seaborne. More oil consumption should also imply more product trade which also should continue to see support from the higher volatility in underlying prices incentivising ‘arbitrage’ trading,” the three analysts noted
“Lastly, a strong crude and product tanker space makes it likely to see migration from the chemical tanker space into the product tankers which should help this fundamental balance as well (the total chemical tanker orderbook of approx. 5.2 million dwt is less than 4% compared with the current product tanker fleet). All in all we believe this is a time to buy crude, product and chemical tankers,” the three analysts concluded.
Erik Nikolai Stavseth and Kurt Waldeland, shipping analysts at Arctic in Oslo, noted that OPEC countries’ crude production jumped in March by 1.2 million bpd on the previous month to 31.5 million bpd.
“The increase was mainly driven by rising production in Saudi Arabia and Iraq – posting a 500,000-600,000 bpd increase each. Libyan volumes also increased significantly from February, climbing 184,000 bpd to 525,000 bpd. OPEC’s effort to weed out higher cost rivals and regaining market share has added to crude tanker demand,” they continued.
“Freight rates have remained firm over the last few days, despite a slowdown in activity as owners await May stems. VLCC spot earnings are tracking sideways and are currently quoted around USD66,000/day by The Baltic Exchange,” the two analysts noted.