VLCC

March 13, 2019

The Research Team reviews the VLCC market

 

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13 March 2019

  • Tonnage supply is showing signs of contraction which is supporting the early stages of the market rally. This is clearly displayed on the chart below. On the other hand, the net fleet balance has deepened concerns of oversupply with the well-documented surge of new buildings hitting the spot market in Jan-Feb. We also recorded an increase in the absolute cargo carrying capacity in the last two weeks which would represent a bigger worry in the medium-term.
  • Demand for shipping capacity continued to improve in the last 10-15 days. This was largely expected as the re-stocking effort kept adding upward pressure to demand. We remain of the opinion that even at this point of the rally the upside is greater than the downside. We have some concerns for Chinese demand one of which is the deeply negative crude oil import spread for China which is imposing a cap on further import increase. As a result, our model is pointing towards a reduction in oil market buying interest, hence a reduction in demand for shipping capacity.
  • Our macroeconomic view has marginally improved. 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 medium-term demand positive development. However, our Global Weekly Energy Intensity assessment suggests that forward demand for shipping capacity is likely to come under pressure.

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