The new ship market is expected to usher in a strong recovery

Oil transportation market outlook: The oil transportation market will continue to boom in 2023, and freight rates will remain at a high level

The growth rate of global oil consumption is in line with the growth rate of global GDP. In December 2022, the International Monetary Fund predicted that global GDP growth in 2022-2024 would be 3.2%, 2.7% and 3.2%, respectively. At the same time, the International Energy Agency (IEA) predicts that the growth rate of global oil consumption in 2022-2024 will be 6.1%, 1.6% and 4.9% respectively. According to the US Energy Information Administration (EIA) data, affected by the impact of the epidemic on demand and the global supply chain, global oil began to actively reduce inventories in the second half of 2020, in addition to the impact of the Russian-Ukrainian war in 2022, oil prices are at a high level, and global oil inventories are still in a inventory reduction cycle, and global oil inventories are at a near 10-year low. Overall, oil inventories and crude oil prices show a reverse relationship, in the future global oil consumption to maintain good growth expectations, oil prices are expected to drive downstream replenishment of inventory.

The conflict between Russia and Ukraine leads to the increase of global crude oil transport distance and the accelerated growth of crude oil turnover. In 2021, the EU will account for about 12% of global crude oil consumption, of which 29% will be imported from Russia. In 2022, due to the impact of the Russia-Ukraine conflict, the EU's oil imports from Russia are falling rapidly, and the International Energy Agency (IEA) data shows that Europe will import an average of 2.2 million barrels of Russian crude oil per day in 2021. Due to the conflict between Russia and Ukraine, Russian crude oil exports to the European Union and the United Kingdom fell 35% to 1.7 million barrels per day in August 2022 from 2.6 million barrels per day in January. In December 2022, the EU implemented a "price limit order" on Russian oil exports, which will further reduce the EU's demand for Russian oil, thereby shifting more demand to the United States, the Middle East and other regions, thus leading to an increase in global crude oil freight. Clarksons forecasts that the growth rate of global crude oil trade will be 5.1%, 1.5% and 3.2% from 2022 to 2024, the growth rate of global crude oil freight distance will be 3.8% and 1.5% from 2023 to 2024, and the growth rate of global crude oil turnover will be 5.3% and 4.7%, respectively. This will further increase the demand for global tanker capacity.

New delivery capacity remained low, and future new capacity continued to be tight. In 2021-2022, new delivery capacity will continuously hit its lowest level since 2015, stacking dismantling volume will remain at its highest level in nearly three years, and tanker fleet capacity growth will remain low. In terms of orders in hand and new orders, shipbuilders' tanker orders in hand and the proportion of orders in hand to existing capacity in 2022 are at a low level in nearly 20 years, and new orders of 2.1 million CGT are added, 63% lower than in 2021, also hitting a new low in nearly 20 years. The shipbuilding cycle is generally 2-3 years, and the decreasing number of new orders in recent years means that the new capacity is tight in the future.

Tight capacity and higher rates will cause shipowners to devote more idle and storage capacity to effective capacity. The increase in storage capacity and idle capacity will lead to a decrease in effective capacity. Oil storage capacity is generally related to the term structure of crude oil futures contracts, and when there is an expected arbitrage opportunity for crude oil forward premium, oil storage capacity will rise, and during the Tsarist Russian oil war in May 2020, the number of VLCC floats increased to 98, an increase of 36% from the previous month. Idle capacity is generally related to freight rates and transportation costs. For example, when oil prices are in an upward cycle in 2021, shipowners' operating costs rise sharply, and when spot income is low, idle capacity also shows a rising trend. When the effective capacity is tight and the freight rate rises, more idle capacity and oil storage capacity will be used to put into the effective capacity, resulting in a decline in idle and oil storage capacity.

It is expected that the global oil trade will continue to boom in 2023, and the oil transportation market will be tight in supply and demand. The outbreak of the Russia-Ukraine conflict in 2022 led to an oil embargo and price cap, and reshaped the global oil trade on an unprecedented scale. The resulting restructuring of trade grids and routes has resulted in a significant reduction in the efficiency of oil trade, which in turn has accelerated most oil transport segments from a slow recovery to a strong cycle. We predict that from 2023 to 2024, the growth rate of global crude oil turnover will be 5.34% and 4.72%, the growth rate of effective capacity will be 3.34% and 2.14%, the excess capacity of the international tanker transportation market will be accelerated, while the new capacity will be at a low level, and the oil transportation market will continue to boom in 2023, and the freight rate will maintain a high level.