Booming Tanker Market Set for Best Q4 in Years, Say Analysts

Analysts assert that the crude tanker market is growing stronger as a result of low fuel prices and is positioned to see continued growth into Q4.

Analysts predict that an already booming crude tanker market is growing even stronger and positioned to see its most profitable fourth quarter in years, as cheap bunkers and a glut of cut price oil means lower operational costs and more demand for oil transportation and storage, CNBC reports.

Shipping rates for some of the biggest tankers to move oil to Asia reportedly peaked at just over $90,000 per day during the first six months of 2015, as country's like China moved to stockpile oil and others looked to benefit from the market contango and employ tankers as floating crude storage.

"We do think that the tanker market is going to see more upside as we move into Q4 of this year," said Christian Wetherbee, a senior transportation analyst with Citi Research.

"We see stronger demand from a heating oil perspective and in terms of overall energy consumption. And we would expect, from a supply perspective, not a lot of incremental deliveries to the existing fleets."

While crude tanker rates are said to have seen a dip during August, sinking to about $27,000 per day, rates for some very large crude carriers (VLCCs) are already reported to have clawed their way back to $50,000 per day, with much of the demand growth coming from Asia.

"China is a significant driver for tanker demand given its place as an oil importer," said Erik Broekhuizen, head of tanker research and consulting at Poten & Partners.

"As the U.S. has consumed less imported crude due to the shale oil boom now, that crude from West Africa or South America is going to Asia."

Long voyage distance to Asia are said to be a "big catalyst" for rates and mean that ships are employed for longer, giving a boost to global fleet demand.

"We should start to see some of the fleet expansion pick up a bit in 2016, but over the course of the next couple of quarters that probably does not play as much of a role," said Wetherbee.

Broekhuizen says that, in addition to smaller vessels and specialised product carriers that transport refined petroleum products including jet fuel and diesel, there are about 730 VLCCs currently operating on the high seas.

"With the significant decline in oil prices, if growth rates stay pretty much the same, the ship owner is much more profitable," explained Broekhuizen.

"When oil was $100 last summer bunker prices were close to $700 per metric tonne. Now it's closer to $250."

Broekhuizen also notes that Iran could further boost crude tanker demand if the estimated 500,000 to 700,000 additional barrels of crude per day is added to the market once sanctions are lifted.

"This will be a double bonus. Some [Iranian] ships will hit the market, but it will be a net positive for tanker market."

Earlier this month, it was reported that product tankers moving diesel and jet fuel are taking advantage of low bunker prices to undertake 4,000 mile (6,400 kilometre) diversions around South Africa instead of utilising the Suez Canal, a development some analysts are saying signals "good times ahead" for the sector.