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Teekay Tankers: IMO 2020 affecting crude tanker demand

02 Aug 2019

Demand for crude tankers in the three months ended (Q2) June 30 2019 have been affected by the IMO 2020 implementation deadline of 1 January 2020 as refineries embark on plans to prepare capacity.

“Lower OPEC oil production and heavier than normal refinery maintenance as refineries prepare for the implementation of the new IMO 2020 standards impacted crude tanker demand, which we expect will continue into the early part of the third quarter,” said Kevin Mackay, President and CEO of Teekay Tankers.

“However, these headwinds were partially offset by continued strong growth of U.S. crude oil exports which bolstered our full-service lightering business and drove our Aframax crude tanker spot rates to average over $20,000 per day during the second quarter, which was above our peer group and benchmarks.

“We expect this strength to continue into the third quarter as additional pipeline capacity comes online, allowing U.S. crude oil exports to further increase.”

The company reported net loss of $14.3 million in Q2 2019, lower then compared to net loss of $27.4 million in Q2 2018.

Total revenues in Q2 2019 were $202.3 million, higher than $171.7 million during Q2 2018.

Tanker rates have been impacted by heavier than normal refinery maintenance in the first half of the year as refiners prepare for the upcoming IMO 2020 regulations, says Teekay.

According to the IEA, global refining throughput fell by 0.7 mb/d year-on-year in the second quarter of 2019, the largest annual decline in 10 years. This led to reduced crude tanker demand, which has carried over into the early part of the third quarter.

Despite some near-term headwinds, the tanker market fundamentals continue to support a market recovery in the latter part of the year and into 2020.

First, refinery throughput is expected to increase significantly in the coming months as refiners ramp up activity in order to produce sufficient low sulphur fuels ahead of the impending IMO 2020 regulations.

According to the IEA, global refinery throughput is estimated to increase by over 3 mb/d in the third quarter of 2019 compared to the second quarter, which is expected to be positive for crude tanker demand.

The new IMO 2020 regulations could create additional volatility for the tanker market through new trade patterns and arbitrage movements, floating storage demand, and a potential increase in port congestion as the market adjusts to the change.

Finally, the tanker fleet is set for a period of much lower fleet growth over the next two years due to a relatively small orderbook. The tanker orderbook currently totals 53 mdwt, or 8.7 percent of the existing fleet size, which is the lowest tanker fleet-to-orderbook ratio since early-1997.

Fleet growth could be further offset by an increase in vessel off-hire time in the coming months as ships are taken out of service for scrubber retrofitting in anticipation of IMO 2020 regulations. As a result, lower fleet growth levels are expected in the second half of the year, with continued low fleet growth during 2020.

Overall, Mackay expects IMO 2020 to positively impact crude tanker demand in the future.

“We continue to believe that tanker market fundamentals support a market recovery in the latter part of the year and into 2020 due to projected underlying oil demand growth, an expected increase in U.S. crude oil exports, significantly higher refinery throughput ahead of IMO 2020 regulations, and lower tanker fleet growth,” he said.

“With healthy liquidity, a market-leading position and significant operating leverage, we believe we are well-positioned to benefit from a tanker market recovery.”

Photo credit: Teekay
Published: 2 August, 2019

 

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