After seeing historically high levels in the fourth quarter of 2022 due to trade-flow shifts resulting from the Russia-Ukraine conflict and the resurgence of global oil demand, Teekay Tankers Ltd expects that midsize dirty tanker freight will remain elevated into 2023, the company said in its fourth quarter 2022 earnings call Feb. 23.
“We think that these freight pattern changes are durable,” CEO Kevin Mackay said in the call. “[This represents] a step-change in demand rather than a short-term spike and that midsize crude tanker trade routes will continue to be stretched in 2023 which will support strong tanker rates in the midsize segment.”
Ton-mile demand for Suezmaxes and Aframaxes has continued to surge since Russia invaded Ukraine almost a year ago, pushing European refiners to shift crude sources to further production regions, including the US Gulf Coast, Latin America, West Africa, and the Middle East.
For the midsize tankers alone, ton-mile demand increased 12% in 2022 year on year, with total Aframax demand pushing up 12.6% and Suezmax demand nearing 10.7%, Mackay said.
“While the mid-size tanker market in the third quarter was among the strongest in recent years, rates in the fourth quarter of 2022 surged to among the highest rates ever recorded,” the company said in its Q4 earnings report.
Freight for the benchmark 70,000 mt US Gulf Coast-UK Continent run topped out at an all-time high of $79.56/mt on Nov. 17, 2022. Although freight has dropped from the Q4 2022 highs, on average the rates in Q1 2023 have so far averaged $41.45/mt, up 68.3% from the $24.63/mt seen in Q1 2022.
Further supporting the bullish freight pattern shifts is a return in total global oil demand back to pre-pandemic levels. Global oil demand is expected to grow by 2.2 million b/d in 2023 due to the resurgence of Chinese demand, according to S&P Global Commodity Insights, .
Tanker demand to outpace supply
This sustained demand pattern will most likely far outpace global tonnage supply as a significant portion of midsize tonnage is tied up in the “shadow” fleet, or ships that have continued to carry Russian barrels.
There are an estimated 150 Aframaxes and 70 Suezmaxes in the shadow fleet trade, pulling a significant portion of the overall fleet out of the typical tanker trade, Mackay said.
In the longer-term supply and demand game, a historically low tanker orderbook is also expected to boost rates as scrapping levels pick up with an aging fleet. The current tanker orderbook sits at 8 million deadweight tons, less than 4% of the existing global fleet and the lowest level since the mid-1990s, according to Teekay.
A combination of fully booked shipyards servicing containership and LNG carrier orders through 2025 and uncertainty surrounding environmental regulations have left newbuild tanker orders in the doldrums.
Additionally, Teekay expects that the introduction of new environmental regulations such as the Carbon Intensity Indicator (CII) will promote slow steaming on voyages to enhance carbon intensity scores and further reduce the replenishment of tonnage in key load regions.
Teekay currently has a fleet of 25 Suezmaxes, 19 Aframaxes or Long-Range 2 tankers and owns a ship-to-ship transfer operation performing full-service lightering and lightering support operations in the US Gulf Coast and the Caribbean.
Source: Hellenic Shipping News
