Analysts have been picking up on shifting patterns in the clean tanker market and looking ahead at further change
Refined product stocks at some key trading hubs have returned close to historical averages after years of oversupply. International Energy Agency data for November 2017 showed gasoline and middle distillate inventories in OECD nations to be just 10mn bl above their five-year average, after starting the year 100mn bl above that average. While this might be expected to herald an uptick in demand for clean tankers, this has not been the case.
According to Gibson Shipbrokers, the key reason for this lack of response to stock levels is structural market change. For example, total product stocks at the Antwerp-Rotterdam-Amsterdam (ARA) trading hub fell to 1.92mn t in late 2017, a sharp 1.75mn t down from the high seen in 2016. ARA has traditionally been a key destination for US diesel cargoes, so it would follow that bookings into northwest Europe would rise as stocks there fell, but this has not happened. While higher diesel output in northwest Europe could be part of the reason for this, Gibson points out that rising demand for US middle distillates in Latin America has created an attractive market for US exporters. The quickening of this trade flow happened during recent years of high stocks in northwest Europe.
The other side of the traditional exchange of products across the Atlantic is the movement of gasoline and blending components from diesel-hungry northwest Europe to the US eastern seaboard, but this has also changed in recent years. Gasoline stocks at the US Atlantic coast stood at 65.3mn bl in the week ending 16 February, more than 10mn bl lower year on year, but this has not translated into higher flows of gasoline from Europe. Volumes on the route have been falling, with a large part of what is not going transatlantic being shipped to west Africa.
Shipowners, unlike trading houses, are slow to hire when the market is volatile or uncertain. After years of sustained high stocks at hubs like ARA, there is little confidence in the idea of falling levels signalling a trend. We therefore do not expect shipowners to expand existing chartering teams at trading hubs in the short term. They are more likely to respond to opportunities in developing markets when conditions are volatile, committing to the placement of small teams that can be relocated if necessary.
Some analysts expect a shift to the widespread use of marine gasoil to replace high-sulphur fuel oil under the International Maritime Organisation’s new global emissions standards. If this shift takes place, trade hubs that are busy bunkering destinations will become focused on gasoil rather than fuel oil, creating a new layer of global clean-product traffic as the hubs are stocked.
Another factor set to alter global product flows is the significant expansion of Middle East refining capacity from 2019 onwards. A large proportion of the new capacity has been designed to maximise high-value export products, and notably diesel. Given the location of this coming capacity, flows of middle distillates between markets east and west of Suez will change, with more Middle East products likely to be shipped to Europe and less from refining hubs in northeast Asia. Reorganisations such as this are sure to cause structural change and opportunity for forward-thinking businesses.