Tanker shipping equities: State of the market and rising asset prices

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ith investors experiencing a massive upside in earnings as well as stock returns in container and dry bulk shipping, expectations have risen to similar levels for tanker shipping as well. However, unlike container and dry bulk sectors the story for tanker shipping has been marred by several factors, with demand being the primary factor.

Global oil demand surpassed 100 mbpd in 2H19 before plunging by 9% to an annual average of 90.80 mbpd in 2020 due to the pandemic-linked demand destruction in 2Q20. OPECs latest report forecasts demand growth of 5.95 mbpd for 2021 followed by another 3.28 mbpd next year, effectively restoring the lost demand by 4Q22. For its part, the IEA sees global oil demand recovering from 90.80 mbpd on average in 2020 to 96.20 mbpd in 2021 and 99.30 mbpd in 2022, slightly more bearish than OPEC.

Be that as it may, a production cut of ~10 mbpd by OPEC+ in May 2020 coupled with well shut-ins by several oil majors continue to have cascading effects on the tanker shipping industry.

Crude tanker earnings are under pressure across vessel classes, driven by ample availability of tonnage at key loading ports which increased the bargaining power of charterers. At USD 1,000pd, average VLCC spot earnings on the AG-Japan route hit a historical low in the past 20 years in the 1Q21 peak season, in contrast to USD 30,500pd average earnings for VLCCs in the first quarter of every year for the past 11 years. The story remained the same in 2Q21 as well since demand remained ....

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