By Katerina Restis
The Covid-19 virus spread around the world has obviously impacted the global oil demand while the situation remains fluid. The overall constraints in travelling and broader economic activity have resulted in the decline of global oil demand. The existing turmoil does not allow market participants to come to safe conclusions on what the final impact in the economy and total oil demand will be.
On the global supply side, record output cuts from OPEC and deep declines from other non-OPEC producers saw global oil production deteriorating. Respectively, global oil output is calculated to increase by 1.7mb/d in 2021 subject to OPEC cuts and basis Norway’s and Brazil’s deliveries. On the other hand, USA supply is estimated to decrease by almost 1 mb/d in 2020 except if further investments arise for the shale industry. The global refinery intake was close to 69 mb/d up to the end of April and overall, down by 12 mb/d on y-o-y basis. Further to that, product stocks raised sharply with OECD recording increases of oil stocks close to 4.9 md/d in April while floating storage for crude oil fell in May. Moreover, OPEC decided in June to extend their output cut close to 10 mb/d throughout July focusing on rebalancing the market. Crude prices rose in May to the highest seen in the past three months as demand resumed and global supply fell strongly. Rising prices compressed products such as diesel, jet and kerosene due to the weak outlook for the aviation industry while freight rates plunged as OPEC cuts took effect.
While the oil market remains fragile, the recent recovery in oil prices implies that the first half of 2020 will end in a more positive outlook than expected. On the demand side, China’s exit from lockdown restrictions has resulted in a demand recovery in April touching 2019 levels. In addition, we have witnessed a strong boost in Indians demand in May, however it is still well below year-ago levels. In the second half of the year, easing of global lockdown measures should give a boost to the oil market. Even so, demand in 2020 is expected to be 8.1 mb/d lower compared to 2019, with the biggest declines being reported in the first half of the year.
The IEA has developed two scenarios on how global oil demand could evolve this year. In the more pessimistic scenario, global measures will fail to contain the virus, and global demand will fall by 730,000 b/d in 2020. In a more optimistic case, the virus is contained quickly around the world, and global demand will grow by 480,000 b/d. Covid-19 impact on oil markets may be temporary, but the longer-term challenges that suppliers will face are not going away, especially for those that are heavily dependent on both oil and gas revenues.
To sum up, as we are beyond the first half of 2020 and measures such as the OPEC agreement and the meeting of G20 energy ministers have provided a major contribution to the efforts for restoring stability to the market, if recent trends in production are maintained and demand does recover, the market will stabilize by the end of the second half. The short-term outlook for the oil market will ultimately depend on how quickly governments will move to contain the corona-virus outbreak, how successful their efforts will be, and what impact the global health crisis will have on economic growth.
Chartering (Wet: Firm+ / Dry: Stable-)
In the Dry Bulk market, the Capesize rates witnessed substantial discounts while the rest of the sizes closed off on a positive note last week. The BDI today (14/07/2020) closed at 1742 points, down by 50 points compared to Monday’s (13/07/2020) levels and decreased by 207 points when compared to previous Tuesday’s closing (07/07/2020). Crude carriers experienced a steadier market last week with VLCC rates setting the tone for a better market ahead. The BDTI today (14/07/2020) closed at 492, increased by 5 points and the BCTI at 339, a decrease of 28 points compared to previous Tuesday’s (07/07/2020) levels.
Sale & Purchase (Wet: Stable+ / Dry: Firm+)
The momentum in the secondhand market remains firm for the dry bulk candidates with geared sizes monopolizing buyers’ interest while SnP activity in the tanker front picked up during the past days. In the tanker sector we had the sale of the “HRA” (320,105dwt-blt ‘11, S. Korean), which was sold to Greek owner, Eurotankers, for a price in the region of $48.0m. On the dry bulker side sector we had the sale of the “MIMI SELMER” (55,711dwt-blt ‘05, Japan), which was sold to undisclosed buyers, for a price in the region of $7.5m.
Newbuilding (Wet: Stable- / Dry: Soft-)
Activity in the Newbuilding market remains soft with only a handful of crude carrier’s orders surfacing these past days, while investors have been shying away of the dry bulk contracting front. Indeed, owner’s appetite is hampered by uncertainty in both the future of freight market and the vessel specification that they must choose amidst the upcoming environmental regulations. At the same time, all the reported newbuilding contracts ascribed to South Korean yards with the tanker orders concerning exclusively Greek buyers. Although the abstention from new projects has triggered the alarm bell for the shipbuilding industry, the sizeable orderbook that the sector witnessed during the last years has made the newbuilding idea even less attractive to most of the owners. In terms of recently reported deals, Greek owner, Kyklades Maritime, placed an order for two firm two optional VLCC crude carriers (318,000 dwt) at Hyundai HI, in South Korea for a price in the region of $105.0m each and delivery set in 2022.
Demolition (Wet: Firm+/ Dry: Firm+)
The demolition market keeps offering good news as average prices across the Indian subcontinent keep further increasing followed by a strong volume of demo sales during the past days. As prices have admittedly corrected upward lately, we have witnessed a gap between the most popular recycling candidates. Pakistani buyers are being well ahead by offering levels that their main counterparts cannot compete with owners determined to take advantage of this window opportunity before the rally ends. Indeed, it remains to be seen whether this mismatch among Indian subcontinent destinations will be maintained or a stabilization of scrap prices is under way rather than later. As far as the Turkish market is concerned, nearly nothing has changed except from the fact that steel prices haven’t materially increased compared to the prior week ones while breakers are making use of the absence of competition in the region to attract European candidates. Average prices in the different markets this week for tankers ranged between $180-325/ldt and those for dry bulk units between $170-315/ldt.
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