Poten: Suezmax outlook cautiously optimistic

Forecast of Suezmaz supply/demand balance [72,187 bytes] The long-term global demand outlook for Suezmax-size crude oil tankers is cautiously optimistic. So says Poten & Partners Inc., New York, in a market opinion published this summer. That cautious optimism comes despite the continuing economic woes in East Asia. Demand for Suezmax tankers on the key West Africa trades has declined despite increased crude exports from that region.

July 27, 1998

3 min read

Forecast of Suezmaz supply/demand balance [72,187 bytes]

The long-term global demand outlook for Suezmax-size crude oil tankers is cautiously optimistic.

So says Poten & Partners Inc., New York, in a market opinion published this summer.

That cautious optimism comes despite the continuing economic woes in East Asia.

Suezmax demand down

Demand for Suezmax tankers on the key West Africa trades has declined despite increased crude exports from that region.

Suezmax tankers are those of 120,000-200,000 dwt size. They face direct competition from very large crude carriers (VLCCs), which are active in moving West African crude to Asia as backhaul cargoes. VLCCs are tankers larger than 200,000 dwt.

VLCCs also compete with Suezmax tankers to move crude to northern Europe and the U.S. Gulf Coast from West Africa.

On the bright side, Suezmax tankers have expanded their activity in the North Sea, benefiting partly from higher production and partly by displacing Aframax tankers. Aframax tanker sizes are 60,000-120,000 dwt.

Demand for Suezmax vessels also has increased at Sidi Kerir (the northern terminus of the Sumed pipeline ) in Black Sea and Caribbean trade, and at the Iraq-Turkey pipeline terminus.

Caribbean exports, anticipated to increase rapidly during the next few years, may be a main source of incremental growth in demand for Suezmax tankers, Poten & Partners says.

Demand vs. supply

While growth in demand in the 1990s has not been particularly robust for Suezmax tankers, the supply of these vessels has steadily fallen.

The consequent narrowing of the supply/demand balance has led to a rise in spot and time charter rates, as well as in secondhand values, the study shows.

Additions to supply are expected to increase modestly along with demand over the next few years. The study defines supply additions as the net of: scrapping; conversions to floating, storage, and offloading/floating, production, storage, and offloading vessels; and reclassifying combination carriers as straight bulk carriers.

The overall supply of Suezmax tanker capacity is not expected to expand beyond demand, the study notes.

"While rates have weakened in the wake of economic turmoil in Asia, we anticipate a gradual strengthening in rates as these economies recover over the next year or two," Poten & Partners said. "We also believe that demand for modern tonnage and regulatory restrictions will create a two-tiered market favoring owners of modern double-hull tankers."

A balance

Some surplus is necessary in tanker supply to ensure that oil can be moved reliably.

For tanker owners, it is the degree of surplus that matters. The study's supply/demand forecast (see chart, p. 42) shows a marginal widening of the surplus, which could weaken rates during the next few years.

However, if charterers begin to show a preference for modern, double-hull tonnage, then a two-tiered market may appear, the study shows.

The downside is increased VLCC participation in West African, Carib- bean, and North Sea trades, capping how high Suezmax tanker rates rise. This, in turn, is affected by economic problems in Asia.

Poten & Partners says that if this turmoil can be contained to the present nations, and if these nations recover fairly quickly, as happened in Mexico, then the improved prospects for VLCCs will reduce the pressure on demand for Suezmax tankers.