The crude carrier market has outperformed expectations so far this year and shipping analysts at Arctic and DNB Markets in Norway remain upbeat on the outlook in the sector.
“The crude tanker market has had a stellar start to 2015 – exceeding expectations by a wide margin. The excess crude in the crude market has led to increased demand for tonnage – boosting fleet utilisation,” said Erik Nikolai Stavseth and Kurt Waldeland, shipping analysts at Arctic, in a daily market report.
“Our updated view on the crude tanker market is a situation where 2015 is boosted by a ‘steroid shot’ from higher oil demand (and potentially floating storage) – driving up rates and contracting activity. The market will be stronger in 2016 than we previously anticipated, but see 2017 as lower again due to influx of tonnage from VLs in 2016 and Suezmaxes in 2017,” they stated.
The combined effect of increased production in the Atlantic – primarily from the US – and a sharp rise in refinery capacity in the Pacific means that a flow of crude from Atlantic to Pacific over the coming years will continue. “This will support the underlying thesis of longer sailing distances which means ton-miles continue to grow,” they said, adding: “With Middle East consuming more crude locally, we argue Latin American and West African barrels have to step up to the plate – and also see the potential for US exports increase to curb the Asian thirst for crude.”
“Our updated rate forecast is an average VLCC rate of USD50,000/day in 2015, declining to USD40,000/day in 2016 and USD35,000/day in 2017. Although historical observations show a strong link between the three largest vessel segments, we see the low fleet growth in Suezmax and Aframax in 2015/2016 resulting in a stronger rate for these classes than what the historical relationship would indicate,” they said.
Arctic has also initiated coverage of Double Hull Tankers, Euronav, Navig8 Crude Tankers, and Tanker Investments.
Meanwhile, Nikolay Dyvik, Oyvind Berle, and Petter Haugen at DNB Markets forecast that Euronav would pay 80% of expected 2015 earnings in dividends. “We expect likely higher oil demand and more crude exports from the Arabian Gulf, which would support rates; to us the rate recovery looks more structural than seasonal. Size, liquidity and potential accretive M&A opportunities justify a premium pricing,” they said about the company in a daily market report.
Shares in Euronav, DHT Holding, Tanker Investments, Teekay Tankers, and Tsakos Energy Navigation all received buy recommendation from the DNB analysts. The firm freight rates also provide upward thrust for valuation of tankers. “We see 11% upside on product tanker values and 14% upside on crude tankers,” they noted.