NEWS DETAILS

Date: 10/07/2024

Product tanker market seen rebalancing given the demand patterns

The recent IEA report forecasting a decline in oil demand by the end of this decade has raised concerns regarding the outlook of the product tanker market. This fall is mainly driven by a shift towards electric vehicles and more efficient engines, affecting demand for gasoline and diesel, comprising more than half of the share in refined products. As a result, the product tanker market is bound to rebalance in the long-run, leading to fleet adjustments and reduced orders, as per a Drewry analysis.
 
Gasoline demand is projected to reduce by 0.2 million barrels per day, starting from 2026 and diesel demand will follow suit as its demand will also decelerate from 2027. Meanwhile, there is a silver lining to this, as demand for naphtha will rise, supported by petrochemical industries and jet fuel amid heightened aviation activity in non-OECD countries.
 
However, these alternatives represent a smaller portion of the overall demand compared to gasoline and diesel, which together make up over 80% of the total demand for clean products (diesel, gasoline, naphtha and jet fuel). As a result, the overall CPP (clean petroleum product) market is expected to gradually decline from 2028, increasing the volatility in the market.
 
From 2023 to 2030, the forecast for regional shifts in oil demand depicts distinct patterns. Asia-Pacific will lead in demand growth, while Europe and North America will record a gradual decline in demand.
 
Meanwhile, refinery throughput in the East of Suez is projected to increase by 2.7 mbpd due to capacity expansions, whereas it will reduce by 0.6 mbpd in the Atlantic basin during 2023-30.
 
These developments will impact product tanker dynamics as rising refinery throughput in major consumer regions could stimulate intra-Asia trade and support MRs. However, the diminishing throughput in the Atlantic basin could constrain long-haul trade opportunities in the long run. Two major factors will drive the product tanker market. First, overall CPP demand will decline gradually from 2028. Second, the expansion of refinery capacities in key consumption hubs like Asia-Pacific, Africa and Latin America will exert additional pressure on the product tanker market in the long run.
 
The product tanker trade has been robust since 2023, following the EU sanctions on Russian products and stretched voyages due to the Red Sea crisis, which has supported shipping rates and boosted new ordering.
 
If this downturn in demand materialised in the long run, the market will shrink, necessitating fleet adjustments via controlled orderings. In the initial years, when the CPP trade is likely to flatten after reaching the peak, ordering will be limited to replacement tonnage, which would meet stringent environmental regulations rather than be driven by demand projections. Once the overall trade plummets in the long run, ordering might go below replacement tonnage. 
 
Although declining trade will contract the fleet gradually and overall product tanker business in the long run, shipping rates will remain volatile and cyclical based on the supply-demand balance. In the downtrend market, any oversupply will take longer to rebalance compared to the uptrend market, where oversupply gets absorbed with incremental demand over time, the analysis pointed out.
 
Source: Exim News Service: London, July 9