VLCC

January 31, 2019

The Research Team reviews the VLCC market

 

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31 January 2019

  • Tonnage supply has expanded rapidly in the last 4 weeks, which has applied downward pressure on the rates. This is our “Topic of the week”. Having said this, one of the functions of net tonnage supply, namely the fleet turnaround time coefficient, reversed at the start of the year. Since lower turnaround time = lower available capacity, our model reads this as an imminent market-positive development.
  • Demand is weak and it is likely to remain weak in the short-term as OPEC+ scramble to adhere to the agreed cuts. Compliance is higher than 100% which is a clear bearish development for the shipping demand in the short-term. This is clearly indicated by the Implied spot demand diagram below. Having said this, it is not all about supply cuts. Demand for crude oil is strong and with re-stocking effort on the way it is likely to remain firm. Therefore, we see nearby floor under the falling shipping rates and improving forward demand.
  • Our macroeconomic view has stabilized which is expected to provide support to the rates. Back in Q4 18 we were particularly worried by the weak lending activity for short-term trade finance. Our concerns have dissipated as we register net flows of credit into the system which is a price positive development. Forward demand is likely to climb as discussed earlier. Our Global Weekly Energy Intensity assessment provides some encouragement for the bulls.

 

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