Flat fleet growth will define the tanker marker in 2024, according to Henry Curra, global head of research at Braemar. Speaking at the Baltic Exchange Tanker Forum, Curra expected a combination of low scrapping and cautious ordering to keep fleet growth in check.
Curra set the stage at the event by recalling the pre-Covid scenario marked by chronic oversupply. The market witnessed a brief yet robust rally in 2020, only to face a significant downturn with the Russian invasion of Ukraine. Despite the challenges, a peculiar trend emerged – while the V peaks in general were showing a slight decline, mid-sized vessels like suezmaxes, aframaxes and MRs experienced stronger peaks, hinting at a nuanced market evolution.
Curra highlighted the divergence in perspectives between tanker charterers and owners. Charterers, wary of the oversupply situation and global economic uncertainties, anticipate a potential downturn. In contrast, owners, buoyed by bullish fundamentals, foresee a lucrative period for shipping due to a lack of new tonnage.
We do think these fundamentals are very supportive of the market. We do recognise that the fleet has been under ordered. We are very aware that there’s a lot of old tonnage that needs to leave the fleet over the next few years and is only being kept in the fleet artificially through sanctions, the environment, and the weaponisation of trade that we’ve seen in the past few years,” he said.
Influence of geopolitics
One of the challenges highlighted by Curra is the difficulty in separating market fundamentals from geopolitics. The global tanker market exists within a geopolitical landscape rife with uncertainties. Issues ranging from conflicts in Israel and Gaza to sanctions on Venezuela and Iran present moving targets that could significantly impact tanker dynamics. “Obviously what we’re seeing in Israel and Gaza could have a fundamental impact on the tanker market,” he said. “Everyone’s trying to fall over each other to try and produce scenarios to make sure that how this situation could escalate is on their radar.” Curra expressed a cautious stance: “We’ve got to start reading between the lines with all these policies. We’re taking quite a neutral position. We’re saying we don’t see a massive escalation in Israel/Gaza. We don’t see blockades, strikes or oil embargoes. But we do recognise – as a very strong possibility – that these things are so unpredictable, and they could escalate quickly.”
The influence of Russia on tanker demand growth post the invasion of Ukraine is a notable factor in Braemar’s analysis. With Russia responsible for 8% of tanker demand growth since the invasion, the potential reversal of sanctions poses a considerable risk to demand. The broker remains vigilant about the geopolitical uncertainties and the implications of a sudden loss of this demand.
While this aligns with a slowdown in the rate of growth, factors like strong US and global economies and uncertainties in interest rates make economic predictions complex. “We are rapidly recognising that there is a slowdown in that rate of growth. And a lot of that growth we’re seeing is driven by China and to a lesser extent, India, but not particularly for OECD, which we think will be in decline.”
Stock drawdowns
Analysing the oil supply side, Curra noted that stocks have been drawn down to their lowest levels, necessitating a reflection in OPEC production, albeit not immediately. “We’re not expecting anything particularly exciting from OPEC before Q2, or the second half of next year,” he said.
US supply growth appears relatively flat, with the possibility of acceleration in the future if oil prices remain above $90 per barrel. Regional dynamics, such as the Middle East’s impact on OPEC policy and the growth of US exports, play pivotal roles in shaping the global oil trade.
Addressing the tanker fleet, Curra highlighted a notable absence of scrapping activity in the past year and a half. However, he predicts a surge in scrapping beyond 2024 – “even in a relatively strong freight environment” – due to the challenges posed by 20 years-plus ships in an environmentally conscious and safety-focused global context. The age of the fleet, particularly ships over 20 years old, raises questions about future utilisation and the changing dynamics of chartering policies.
On the new building front, scheduled deliveries are lower than expected given the prolonged period of market strength. Owners, cautious in the face of uncertainties such as long-term oil demand forecasts and evolving propulsion systems, have shown restraint in ordering new vessels. Recent orders, primarily in the coated and mid-sized segments, reflect this cautious approach.
He reiterated the importance of the age of the fleet. “Going forward over the next three or four years, how many ships hit 20? We’ve got to make a judgement about what we do with this over 20-year-old fleet?
The LR1 fleet, for example, is getting “drastically older” and that is changing chartering policy with respect to age, but only up to 20 years. “I find it very difficult to see a mass use, mass employment or high utilisation for over 20-year-old ships going forwards,” Curra said.
To conclude, Curra returned to a projected flat fleet growth, coupled with a strong outlook for crude in 2024 and “good numbers” of $32,000 a day for MRs; $35,000 for LR1s; and $37,000 for LR2 in 2024.
Source: Baltic Exchange