New York-based McQuilling Services has released its keenly read 25th anniversary edition of its tanker market outlook. Headlines from the weighty tome are that crude tankers will have to wait until 2024 before they’re profitable and asset values are set to come under even greater pressure. The 165-page report looks at the sector through to 2026 using quantitative modelling to produce a five-year spot and time charter equivalent (TCE) forecast for eight vessel classes across 24 benchmark tanker trades, plus four triangulated trades.
McQuilling is projecting spot market earnings for VLCCs to average a paltry $2,500 a day in 2022 on a non-eco, no scrubber basis and $11,000 a day for eco-designs, without scrubbers. The peak year for VLCC spot market earnings in McQuilling models has been pushed out to 2025, amid substantial supply-side support, while suezmaxes and aframaxes are projected to return healthier levels in 2022, each benefiting from increased deployment optimisation and strong inter-regional trading originating from Atlantic Basin export centres. The years 2023 and 2024 reveal improving fundamentals for crude tankers, although McQuilling is sceptical that crude tanker earnings in 2023 will rise above cash break-even levels for most tanker.
The decline in asset values may be further exacerbated by increasing debt servicing costs from higher interest rates
The findings from McQuilling’s product tanker market analysis show a more promising balance of fundamentals in these segments. The strong oil demand recovery anticipated will be augmented with longer mileage routings caused by changes in regional product balances. Coupled with this healthy demand outlook, are relatively light increases on the vessel supply side, supporting non-eco spot market earnings for the core product tanker segments, which McQuilling projects to outperform their crude counterparts in 2022, albeit modestly. Upward momentum on earnings is duly forecast for clean tankers in 2023, which will finally benefit from a low orderbook of VLCCs and suezmaxes, which have been demand disruptive to clean tankers over the last couple years.
McQuilling Services’ commercial director, Stefanos Kazantzis commented, “A very high orderbook this year will not do owners any favours and we can only hope that this year marks the beginning of an accelerated deletion cycle, to support the market in the years ahead, which in fact appear promising with the expected low delivery schedule in 2023-24 and continued gains in ton-mile demand.”
On product tankers, Kazantzis said, “Overall, we are more supportive of clean tanker earnings, although, we don’t foresee any significant premiums over the crude markets in 2022 as cannibalisation of clean cargoes from crude newbuildings is still very much a negative factor as is the potential for LRs trading dirty to switch-over to clean trading.”
Concluding, Kazantzis looked at declining asset values, saying, “A key development to watch out for this year are potential changes in asset valuations, which have been supported by high replacement costs, elevated scrap values as well as a general lack of modern inventory available for sale. We anticipate a paradigm shift to occur over the next 12 to 18 months, whereby inflationary pressures subside, and natural delivery dates offered by yards increase slot availability, particularly as we move into the latter part of the year and 2023. These factors may pressure contract prices according to our newbuilding forecast models, effectively removing an important support pillar for secondhand prices. The decline in asset values may be further exacerbated by increasing debt servicing costs from higher interest rates, which at the same time, will place further pressure on asset prices due to their inverse relationship.”