Demand will grow faster than supply during both 2023 and 2024.
In 2024, we predict that crude tanker demand will be up 4.5-6.5% on 2022, whereas supply will reduce by 0.6%. Similarly, we envisage product tanker demand growth of 6-8%, with supply falling 0.7%.
Freight rates, time charter rates, and second-ship values will all see gains throughout 2023 and 2024.
Renewed growth in China and increased demand for jet fuel following the reopening of travel to and from China are key drivers of cargo demand growth.
In addition, we expect that an increase of 3-4% in average sailing distances following the EU’s ban on Russian oil and oil products will add to tonne miles demand.
Fleet growth is limited by very small order books. Combined with predicted reduction in sailing speeds of 2-3% % due to decarbonisation regulations, overall supply will fall.
The EIA predicts that oil prices with fall throughout 2023 and 2024 and that Brent will dip below USD 80/barrel in 2024.
The IMF predicts global GDP growth of 2.9% in 2023 and 3.1% in 2024 but highlights that the balance of risks remains weighted on the downside.
Risks to our forecast therefore remain. Cargo demand would suffer from lower economic growth and predicted structural shifts have yet to be seen.
Our forecast predicts that crude tanker demand will grow faster than supply by 2.5-3.5 pp in both 2023 and 2024. The product tanker market will fare even better, with demand outpacing supply by 4.5-5.5 pp in 2023 and by 2-3 pp in 2024. Unsurprisingly, we predict that the tightening of the supply/demand balance will lead to an increase in freight rates, time charter rates, and second-hand ship prices. We believe in fact that the market will experience a period of sustained market strength that has not been seen since the 2008 financial crisis. Obviously, risks to our forecast remain.
Cargo demand is heavily dependent on renewed growth in China leading to increased domestic demand as well as growth in global jet fuel demand as travel to and from China reopens. Cargo supply could be hurt should Russia fail to sustain oil product exports and China again curtails export quotas. Although the supply/demand balance could still tighten even if average hauls do not increase or sailing speeds do not decrease, both factors are key drivers of the significant strength that we predict. Should either of these shifts in trade and operational patterns not materialise as predicted, the market will not strengthen as per our forecast. Even without these structural shifts, the supply/demand balance will, however, still be stronger in 2024 than in 2022 if our fleet and cargo growth estimates are accurate. As such, it will take quite a few unpredicted changes to fully undermine the predicted improved strength of the markets.
Source: BIMCO