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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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Teekay predicts weak Q3 rates as OPEC cuts continue to affect tanker demand

Operator highlights OPEC supply cuts as the main cause of the current slow growth in tanker demand.

Updated on 24 Jul 2017 11:50 GMT

Teekay Corporation has highlighted OPEC supply cuts as the main cause of the current slow growth in tanker demand, which combined with high fleet growth has resulted in low vessel rates.

Speaking in the company's latest tanker market review, Christian Waldegrave, Manager, Research, explained that the size of the global VLCC fleet is up around 7.5 percent compared to last year, the Suezmax fleet is approximately 8 percent larger, and the Aframax fleet is up roughly 5.5 percent. However, in comparison with these growth figures, tanker demand is only increasing at between 2 and 3 percent, which has put pressure on rates.

According to Waldegrave, the principal reason why tanker demand has not been growing strongly is OPEC's supply cuts, which have led to some reduced tanker demand in the Middle East.

Lower Middle East demand has been offset by some longer-haul movements from the Atlantic to the Pacific - as previously explained by Teekay in May, when the company said that the mid-sized tanker segment had found some support from increased ton-mile demand as Asian buyers look to Atlantic Basin supply to replace reduced OPEC barrels. And whilst there has been higher production in the United States, Libya and Nigeria, which has offset some of the Middle East cuts, Waldegrave noted that it has not been enough to create strong tanker demand growth.


Looking ahead, Waldegrave said the rebalancing of the oil markets "may take a bit longer than was previously anticipated".

In addition to stronger US production, Waldegrave noted: "This month Libya looks like it's got back to around 1 million barrels a day of production, which is the highest in four years, and Nigeria is getting back to about 2 million barrels a day of production. So that's offsetting the OPEC supply cuts and is keeping oil prices low and will probably mean that rebalancing - like I said - won't take six months; it may take nine months or a little bit longer."

On the positive side, Waldegrave said the current situation would be good for mid-sized tanker demand, and, by keeping pressure on oil prices, it would be favourable for bunkers - in terms of low prices for buyers - and positive for oil demand as well.

On the negative side, the Teekay analyst observed that "the longer it takes for the oil markets to rebalance, the longer it will take for OPEC to open the taps up again," whilst also noting that OPEC "may look to bring Libya or Nigeria into the cut agreement, or they may look to steepen the cuts compared to where they already are, in which case that would again be negative for tanker demand through the next few months".

Q3, 2018 and 2019

For the third quarter (Q3) - a traditionally weak period of the year for tanker rates - Teekay expects rates to remain weak throughout Q3 and that the winter will be "quite muted" compared to the last couple of years. Waldegrave pointed out that Saudi Arabia usually keeps more oil for local demand in Q3 for power generation, whilst up to 10 percent of China's refining capacity could be offline due to refinery maintenance.

But Teekay expects the tanker market to improve, probably in the second half of 2018. The vessel operator predicts tanker fleet growth will come down to around 3 percent next year and to 2 percent in 2019, whilst it sees OPEC increasing supply once the markets have rebalanced.

"As that fleet growth comes down and as OPEC starts to increase supply again once the markets have rebalanced, then we do expect that the tanker market will show a recovery starting [from the] second half of next year and strengthening into 2019," Waldegrave remarked.

Image: Christian Waldegrave, Manager, Research, Teekay Corporation.

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