First Dry Bulk, Then Box Carriers - Now Poten & Partners Warns of Looming Tanker Market Woes

The tanker market is facing too many ships and not enough demand in 2017, warns Poten & Partners.

With dry bulk in a state of fragile recovery from its historic lows earlier this year and then the troubled container ship markets rocked by the collapse of South Korean giant Hanjin, credit managers have already had a busy year, but Poten & Partners Inc (Poten & Partners) now warns of upcoming woes in the tanker markets.

Writing in its latest Poten Tanker Opinion, the consultancy says that for 2017, the sector faces an all too familiar story of too many ships to meet demand.

"The orderbook for delivery in 2017, particularly for crude oil tankers, is high and the prospects for oil demand growth have been muted," explains Poten & Partners.

While 2016 saw China retain its role of tanker market supporter as a reliable source of oil demand growth, the consultancy warns that there is "significant uncertainly" on China's prospects for demand growth in 2017.

"China has continued to provide significant support to the tanker trades in 2016. Despite this, the tanker market has been under pressure for most of this year," said Poten & Partners.

"A slowdown in Chinese oil demand growth will be bad news for a tanker market which is already facing multiple challenges next year."

The consultancy explains that Chinese import demand growth is likely to be more limited in 2017, citing expected lower demand from teapot refineries and reduced levels of stockpiling for the slow down.

Market consensus forecasts China's import demand growth to see levels of 4-5 percent in 2017, less than half of the double-digit growth rate seen in 2016, according to Poten & Partners' data.

Meanwhile, in terms of tanker market supply, a "significant" orderbook will need to find a place somewhere among the tanker fleet next year, says the consultancy, noting that shipyards are scheduled to deliver one very large crude carrier (VLCC) and one Suezmax every week of the 2017 year - capacity growth that is noted to be "well above" fleet replacement need and tonne-mile demand growth.

Cuts to Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC production are also expected to reduce tanker demand, putting further pressure on an already stressed market.

"In the oil and tanker market, anything can happen, but it appears prudent for the owners of large tankers to batten down the hatches, just in case," concluded the Poten & Partners report.