IMO 2020 positive for tanker market: Teekay Tankers

Points to higher refinery output, rise in tanker storage demand and emergence of new long-haul trade routes.

Image credit: Teekay Corporation

Updated on 15 Nov 2018 13:03 GMT

Teekay Tankers (Teekay) says it expects the introduction of a new global limit on the sulphur content of marine fuels in 2020 to be positive for tanker demand.

With the implementation of the new 0.5 percent cap, the tanker specialist says it expects to see an increase in refinery output, the emergence of new long-haul trade routes, and the potential for floating storage demand for both crude and product tankers.

Added to this, Teekay also points to other current and future factors that it believes are positive for the tanker transportation market.

Rise in oil demand and production predicted

In terms of oil production and demand, Teekay notes that US crude output is forecast to rise by 1.2 mb/d in 2019, whilst global oil demand growth is forecast at 1.4 mb/d next year (in an average of IEA, EIA and OPEC forecasts), which is only marginally lower than estimated growth of 1.5 mb/d in 2018. This, Teekay says, is expected to help support crude tanker demand next year.

Firm tanker rates, low fleet growth

Teekay also observes that tanker rates firmed counter-seasonally during the third quarter, which is normally the weakest quarter of the year. The Bermuda-based firm explains that this was due to higher OPEC and Russian oil production in conjunction with strong US Gulf crude exports, which offset the impact of seasonally lower oil demand.

A key reason for the higher rates, Teekay notes, has been low fleet growth in 2018. The company forecasts that fleet growth will increase moderately in 2019 due to a relatively lower level of scrapping, and expects it to remain low in 2020, based on current orderbook data.

Lower bunker costs with higher oil production

Following the introduction of US sanctions on Iranian crude, Teekay posits that with it "becoming more apparent" that OPEC has enough spare oil production capacity to offset any drop in Iranian exports, and the US granting Iranian import waivers to eight nations, the resulting rise in oil production - and drop in crude prices to down to below $70 - "is positive for tanker earnings in the near-term due to lower bunker costs."

"However, it may cause OPEC to revisit production levels in the coming months, which could create some rate volatility through the early part of 2019," Teekay adds.

Q3 results

In its financial results for the third quarter (Q3), released on Thursday, Teekay posted a net loss of $17.48m, which was an improvement on the $22.38m loss recorded during the corresponding period in 2017, and the $27.41m loss posted in Q2.

For the first nine months of the year, Teekay posted a deeper net loss of $64.05m - compared to $56.14 last year.

Commenting on the results, Kevin Mackay, Teekay Tankers' president and CEO, said: "Crude tanker rates strengthened counter-seasonally during the third quarter of 2018, which is typically the weakest quarter of the year, and exceeded our results from last quarter.

"In the fourth quarter to-date, crude tanker rates have continued to strengthen, driven primarily by very low fleet growth as a result of high scrapping activity and higher oil production from OPEC, Russia and the United States. Higher oil production in the United States is also positive for mid-size tanker demand due to direct exports to Europe on Suezmax and Aframax tankers and reverse lightering demand in the U.S. Gulf. Looking ahead, we are very encouraged by the recent strength in crude tanker rates, and we believe that we are at the beginning of a more sustained recovery in the tanker market."