DNB Markets analysts in Oslo have raised their forecasts for product tanker freight rates and vessel valuation to reflect the continuing benign trading environment.
“We reiterate our positive view on the product tanker segment as we see continued potential upside risk,” said shipping analysts Nicolay Dyvik, Oyvind Berle, and Petter Haugen in their latest market report . “Coupled with limited new ordering, product tankers migrating to the crude segment, and constant high volatility in petroleum products’ prices, we have increased our spot rate and vessel value forecasts.”
The International Energy Agency (IEA) oil demand growth estimate for 2015 has almost doubled since February, the analysts said, so they have raised their demand estimates for product tankers to 8.3% in 2015, 5.7% in 2016, and 3.9% in 2017.
“In our report from March, ‘A structural story with upside risk’, we saw potential upside risk (due to higher than expected demand elasticity for oil) to the IEA’s 0.9 million [bpd] oil demand growth estimate for 2015,” they said.
“The IEA now expects growth of 1.7 million bpd this year, circa 90% more than in March. In addition to the potential upside risk on future oil demand, we still believe the ‘new oil order’ (i.e. OPEC no longer defending price but market share, leaving US unconventional oil production as the marginal price setting mechanism in the medium term) should fuel volatility in oil prices, which should also support arbitrage-driven trade in petroleum products,” the report said.
Despite current elevated spot rates, ordering remains manageable. Year-to-date (YTD) ordering on annualised level has been about 5% of the fleet and the order book-to-fleet ratio since March is down from 17% to 15%, despite the high earnings in the product tanker market (YTD average of USD22,700/day). “We have reduced 2017e fleet growth to 2.9% (3.7%) to reflect this. For 2015-2016, we expect fleet growth of 6.8% and 5.6%, respectively,” they said.
Earnings for Aframaxes trading crude have been about USD38,000/day so far this year, while the LR2s carrying naphtha between the Middle East and Asia have earned 15% less (USD32,000/day). “Hence we think there is more potential for product tankers to move into crude trade than vice-versa,” the analysts said.
“We have increased 2015e MR spot rates to USD22,000/day (USD18,000/day in the previous estimate). For 2016-2017, we have lifted our estimates to USD20,000/day (from USD18,000/day and USD19,000/day, respectively). Similar changes apply to our LR segment estimates,” they said.
“We have also increased our asset price forecasts. Product tanker second-hand prices are up by an average of circa 5% since March and we continue to see 6% to 24% additional upside for second-hand values in the LR segments and 8% to 15% upside potential on MR values, depending on the age of the vessels, looking one year ahead,” they concluded.