The product tanker market: The 'big story' behind the boom

In its report at the beginning of the year, Clarksons Research believes that the tanker and product tanker markets will usher in fundamental improvements. Both market earnings have strengthened significantly so far this year. In addition, while the current asset prices of second-hand ships for bulk carriers and container ships have fallen, the Clarkson Tanker Price Index (based on 5-year ship age) has risen by an average of 16%. In this column, we will discuss the product tanker market in the future.

Among the many tanker freight data released by Clarksons Research, we select the light product tanker that is currently the most prominent for further explanation. Clarkson light product tanker average earnings rose to $49,685 per day in June this year, the strongest monthly average on record. Just twelve months ago, this standard value once fell to 3,666 US dollars per day, the lowest value in Clarkson's history in more than 30 years since data was recorded. In the context of the current energy crisis and energy security, the factor of product oil tankers is also worthy of attention.

Historical peak review

The light product tanker market has experienced many booms, the most recent peak was in 2020, close to US$100,000/day

2004-2005: Benefiting from the strong growth of refined oil trade (both 10% in both years), the average earnings of light product oil tankers rose to over US$40,000/day several times during this period.

2007 and 2015: There have been small peaks in which earnings briefly exceeded $30,000/day, respectively. In 2007, it was mainly due to the collateral impact caused by the oil spill of single-hull crude oil tankers; in 2015, the sharp drop in oil prices promoted the growth of trade demand.

2020: Earnings surged to $94,523/day at the end of April, almost double the previous record. Behind the surge in income levels is that due to the sharp drop in oil prices under the influence of the epidemic, many product tankers have been leased for floating oil storage purposes. According to Clarksons data, 10% of the product tanker fleet capacity was used for oil storage at the beginning of May 2020, compared with less than 1% at the beginning of the year.

new milestone

Demand-oriented, Russia-Ukraine conflict amplifies trade demand in tons of nautical miles

As mentioned at the outset, earnings levels have risen strongly this year (although earnings fell slightly into August). Among them, the average income has remained above $40,000 per day for fifteen consecutive weeks, which is the longest one on record. Compared with the second quarter of 2020, earnings rose sharply in a short period of time, reached a peak and then quickly fell back. As of last Friday, the average yield of Clarkson light product tankers was US$45,088/day, and the average yield of large to small LR2, LR1, MR and Handy vessels all improved significantly.

Current market conditions reflect some drivers:

The growth rate of the product tanker fleet is slowing down: The statistics of the Clarkson product tanker fleet will maintain a low growth rate in the short term, and there may be negative growth in 2023. The current fleet of product oil tankers above 10,000 dwt accounts for only 5.24% of the fleet.

Demand for refined oil trade is steadily recovering: The more frequent shutdowns and restarts of refineries in recent years have increased the volatility of refined oil prices, while improvements in refinery profit margins have also expanded arbitrage opportunities in oil trade. Current Clarksons refined product seaborne ton trade is expected to grow by 1.4% in 2022.

Shifting trade landscape, increased long-distance trade drives ton-mile trade growth: Clarksons refined oil ton-mile trade is forecast to grow by more than 8% this year, 6% above 2019 levels (although seaborne ton-mile trade is still expected to be higher than 2019’s The total amount is reduced by about 5-6%). The current conflict between Russia and Ukraine has led Europe to import more refined oil from the United States, the Middle East and Asia, which are shipped farther by sea.

Eastward shift of production capacity and energy security

Energy security issues deserve attention. Will there be uncertainty in the transfer of refinery capacity?

A few years ago, Clarksons research hinted at a west-to-east shift in refineries and tracks the number and size of refinery capacity in countries and regions around the world. After 2008, production capacity in Europe and the United States was closed one after another, and the global refining capacity layout continued to focus on Asia. Saudi Arabia and China have further increased their refining capacity since the beginning of this year. Global refining capacity is expected to increase by 1.5% to 102.2 million barrels per day in 2022, of which the Middle East and Asia-Pacific (including India) refining capacity will increase by 13% and 2% to 11.2 million and 36.65 million, respectively. barrels/day. As the second largest oil refining country in the world, China is expected to increase its production capacity to 17.9 million barrels per day in 2023, and is expected to become the country with the largest oil refining capacity in the world.

In the energy crisis that began last year, European and American countries realized that the transition from crude oil to refined oil imports could be more costly than initially expected. The conflict between Russia and Ukraine has further magnified the importance of energy security. Not only is Europe highly dependent on Russian energy, but its energy independence is weakened. Refining capacity in other countries has also decreased in the past few years. Australia currently has only two refineries in the Pacific market, and New Zealand closed its only refinery in operation for 60 years this year. Although China currently has sufficient refining capacity, due to energy security considerations, China's total export quota for refined oil products this year is 24 million, 13 million less than the same period last year.

Based on this, it is worth paying attention to whether European and American countries will continue to suspend and shut down refinery production capacity as planned, and whether it is even possible to restart some production capacity. Since the change of the trade pattern is the main factor affecting the current ton-mile trade demand, changes in the capacity of refineries in the future will become an important factor affecting the trade of refined oil products.

This article is published with permission from Clarkson Research