There have been a few bright spots in the tanker sector in the last few months such as the increased demand for oil as countries begin to get control of the Omicron COVID and pandemic restrictions being eased in most European countries However, as DynaMarkets Monitor for January 2022 points out there is still a fundamental imbalance in supply.
Freight rates for the crude tanker market continued to slide in early 2022, from its already weak month of December 2021. The weakness seen in early 2022 is customary due to the Lunar New Year. This combined with higher bunker prices have impacted the earnings and profitability of the segment in general but the VLCC segment in particular. It needs to be pointed out that the situation described above has been eased to an extent by a strong recovery in the demand for oil.
With the above in mind, there is a palatable optimism in the tanker market that a recovery could take place in the second half of 2022. This sentiment was based on the fact that China’s and India’s demand for crude would continue at the same time as the price for oil, not rising to such levels that it stifles demand. Additionally, oil inventories have declined in general and as such would need to be replenished.
All the above has now been thrown in turmoil due to the Russian invasion into the Ukraine. The price of oil has skyrocketed and in the short term all projections have now been thrown into doubt. The high price of oil should stifle demand, in particular in the medium to long term. However, in the short term the higher oil prices have not yet deterred demand. For tankers, in particular Suezmax and Aframax have seen their spot market price surge to levels last seen in 2020. Although VLCCs have seen a considerable increase, these have not been as high as those seen for the Suezmax and Aframax classes. The reason for the spike is due to the uncertainty prevalent in the Black Sea, where vessel owners are unwilling to call at Russian ports and where Ukrainian merchant vessels have already been captured and seized by the Russian Navy.
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