LONDON – The shock decision by Opec+ to cut oil production is not just redrawing the outlook for crude prices, but has also hit the prospects of tanker companies that transport the barrels.
Shares of oil tanker pure-play firms including Frontline, Euronav and DHT Holdings all slumped on Monday after the alliance of producers surprised the market with a surprise output cut of about one million barrels a day.
About 40 per cent of global crude output is transported by sea, meaning a substantial loss of cargoes seems likely. Clarksons Securities, a unit of the world’s biggest shipbroker, said the largest supertankers could see their earnings temporarily slump by about a third from the resulting decline in cargoes.
“This is an obvious negative,” said Mr Halvor Ellefsen, a tanker broker at Fearnleys Shipbrokers in Britain who has worked in the industry for almost four decades. “It is not what owners needed.”
The production cuts will probably lead to a real loss in supply and tighten global oil markets because those doing the cutting are largely pumping at their quotas, Oil Brokerage said in an e-mailed note on Monday.
Russia’s invasion of Ukraine and the ensuing western sanctions had tilted the market in owners’ favour.
Vessels that previously delivered oil a few thousand miles to Europe are now having to transport it all the way to Asia, keeping tankers employed for longer and boosting vessel earnings.
China’s exit from zero-Covid policies has also fired up the economy of the nation, which has long been the driver of oil demand growth, with buyers shipping millions of barrels of extra crude.
Rates for modern ships with equipment to run cheap fuel are earning not far off from US$100,000 (S$133,000) a day, a very high level by historical standards, according to data from Clarksons Research Services.
The United States may also curtail some exports in the coming months because its own refineries will likely boost processing as they come out of seasonal maintenance, further diminishing the flow of cargoes, Fearnleys’ Mr Ellefsen said.
While US crude exports are likely to slow after hitting a record high earlier in 2023, the market awaits the Biden administration’s response to the move by the Organisation of Petroleum Exporting Countries and its allies (Opec+), said Mr Greg Lewis, analyst at BTIG.
Still, the output curbs will be offset if Asian refiners have to source barrels from far-flung suppliers in the Atlantic Basin instead of the Middle East, where the cuts are focused, said Mr Brian Gallagher, head of investor relations at Euronav. It will serve to trim fleet utilisation in what are “very strong markets”, he said.
Clarksons Securities analyst Frode Morkedal said that the Opec+ step is precautionary and therefore may not have a lasting impact on demand for tankers if consumption picks up. The number of new vessels being built is also low, which should support rates, he said. BLOOMBERG
