Tankers Are Like A Box Of Chocolates
19 Feb 2016: The uncertainty around the direction of the tanker market has increased since the start of 2016. At current production levels, the markets for both crude oil and (certain) refined products seem oversupplied, which supports healthy spot rates for both crude oil and product tankers. Tanker market bulls argue that if crude producers keep pumping oil at full tilt and refiners continue to process it at high levels, the tanker market will have another banner year. Tanker rates will be particularly strong if the oversupplied oil markets lead to significant levels of floating storage. Although reports continue to surface about the potential for floating storage, actual market activity has been fairly limited so far. The argument of the tanker market bears centers around the expectation that low oil prices and pressure on refining margins will ultimately lead to cutbacks, leading to a reduction in tanker demand, at the exact time that tanker supply (in particular of large crude tankers) is expected to increase. This could lead to a significant decline in tanker rates. Without making any predictions as to which scenario is more likely, in this opinion we would like to explore the downside case.
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