OIL AND CHEMICALS, TANKERS
The world needs to increase its oil supply, fast, and it is only good news for the tanker market.
Published 16. Feb 2022 11:00 AM
OECD industry oil stocks declined by a steep 60 mb in December. At 2 680 mb, oil inventories were 355 mb lower than a year ago and at their lowest in seven years
Let’s start this article with a quote from the IEA February oil market report “OECD industry oil stocks declined by a steep 60 mb in December, led by large draws in middle distillates across all regions. At 2 680 mb, oil inventories were 355 mb lower than a year ago and at their lowest in seven years”. When talking about the tanker market, oil inventories are extremely important as it is an indicator of when countries will start to increase their oil imports, leading to an increase in ton-mile effectively.
To say it mildly, we could be heading towards a spike in oil prices as OECD countries fight each other to fill up their inventories, but there are solutions available. If OPEC+ started to perform more effectively and remove many of the cuts that were set due to the pandemic, then oil supply could increase as much as 4.3 mb/d in 2022 plus another 2 mb/d which none-OPEC+ producers will supply. Another effective solution, which is more likely to be a plan B for politicians, is Iran sanctions. If Iran sanctions were lifted, we can expect to see another 1.3 mb/d (about one Suezmax per day) added to the market, as almost pure seaborne exports.
One thing is clear, oil prices are already high, and it has become a political topic to ensure that they do not go higher. Demand is currently exceeding supply, OPEC+ continues to underperform and miss their output targets and the global refining industry has underperformed relative to demand for the past six quarters and this is set to continue for most of 2022 according to IEA. While these are the facts we can expect producers to look for ways to increase supply any way they can. As shale becomes more profitable at these price levels, US production is also expected to grow, IEA forecast the US oil supply growth for 2022 to be 1.2 mb/d. Supply and demand will eventually find common ground and right now supply is chasing demand. With this in mind, the overall result for the tanker market is positive, and with its current pace, we believe that the effects will show in 2022.
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