The challenging freight market during the third quarter came despite some encouraging signs with active scrapping of vessels returning (nine VLCCs scrapped plus one removed from fleet for FPSO project; six Suezmax scrapped during the third quarter) incentivized by a steel price at near three-year highs, says Euronav NV.
This was supported by continued upgrades to crude oil demand with the IEA raising its forecast for 2017 from 1.2 mbpd to 1.6 mbpd over the course of the third quarter and U.S. crude exports again making further progress to record on average 933k bpd for the third quarter.
However, the VLCC order book continued to expand with 13 new orders placed during the third quarter largely outpacing this re-emergence of sector discipline in scrapping.
The expected seasonal low level of cargoes during the third quarter combined with thirteen new VLCC and fifteen new Suezmax deliveries during the quarter drove freight rates to low levels not seen since the third quarter of 2013 and approaching operating cost break-even levels.
OPEC production cuts have recently been accompanied by more assertive and selective crude export reductions. Combining potential extension of production cuts to the end of 2018 and the recent rise in geopolitical concerns in specific oil producing regions (Kurdistan, Nigeria and Libya), could provide negative headwinds to ongoing crude oil supply.
Paddy Rodgers, CEO of Euronav, said, "Freight rates remained under sustained pressure in both the VLCC and Suezmax sectors during Q3 - particularly in August as seasonally low levels of cargo and new tonnage entering the market combined to drive rates to lowest levels since 2013."
"Whilst there has been an encouraging recent uptick in scrapping activity and crude demand growth continued to see upgrades during the quarter, the delivery schedule of new vessels remains elevated into late 2018. Euronav retains substantial balance sheet capacity and fixed income visibility to navigate through such a period of lower freight rates and/or to take advantage of expansion opportunities."
So far in the fourth quarter of 2017, the Euronav VLCC fleet operated in the Tankers International Pool has earned about $26,000 and 45 percent of the available days have been fixed. Euronav's Suezmax fleet trading on the spot market has earned about $16,000 per day on average with 56 percent of the available days fixed.