Q&A: Maersk expects clean tanker volatility to persist

2022 was a volatile and record-breaking year for the clean tanker market, as disruptions from the Russia-Ukraine conflict along with continued demand recovery from the Covid-19 pandemic put significant upward pressure on rates. Maersk Tankers chief commercial officer Eva Birgitte Bisgaard spoke with Argus on 3 February about the historic last year, the current state of the market and the much-anticipated EU ban on seaborne Russian refined product imports, which came into effect on 5 February.

After a very strong 2022, clean tanker rates have come down pretty sharply over the past few months. I think this took some people by surprise. There were expectations among a lot of market participants that rates were going to stay strong into the EU ban, and the ban was going to supercharge things. So was the synchronized drop in rates across all markets something that took you by surprise, and what do you think were the main reasons for the drop?

So first of all, I'd like to take you back a little and explain what we saw during 2022. When the Russia-Ukraine situation evolved, we had our market analysts draw up different scenarios to assess what it is that we can expect to happen. And we had these scenarios showing that demand will probably have to come from somewhere else. Because we had a view within our initial scenario descriptions that Europe wouldn't be able to take in Russian oil. Now that is not really what happened. There wasn't a huge increase in tonne miles, because there wasn't a huge alteration in trade flows.

So then we started digging into what is it we're really seeing. And even before we went into 2022, we were already starting to see a tightening supply and demand balance, and of course now that is tightening even further. Then the Russia-Ukraine situation started, and suddenly we had oil prices that went all over the place, and that opened up arbitrage opportunities. And at the same time, we saw a two-tier market where naturally if you went in and did the Russian liftings, you would be ordered at a premium.

And I think because of that two-tier market, and because rates developed the way they did, and because suddenly we had parts of the market who needed to call in the vessels by basically mirroring the rates we were seeing on the Russian trades, that started elevating into these very high rates that we saw in 2022. So going into 2023, we know there is at some point in time going to be established a new equilibrium in the market. And I think for us, we are still at very high levels, so when you describe a drop in rates, we're still talking extremely high rates. And it is key to remember that.

And also what we expect going on from here is of course, yes, there will be an equilibrium, but we also expect a 9pc increase in demand and only a 2pc increase in supply in 2023, which of course means that we're going to be tightening up in the tanker market, meaning that we are going to be more susceptible to any shock that might hit the market.

And we also believe that some of the outcomes of the 5th of February are going to shift bits and pieces in the market. It has to, because we're going to need the 750,000 barrels we're getting from Russia today here in Europe. So somehow that demand needs to be supplied.

Do you see that 9pc increase in demand as mainly the result of the aftershock of the EU ban on Russian refined product imports or are there other drivers?

No, we only look at the fundamental drivers. So when I say that we have a 9pc increase in demand, please do bear in mind that only brings us back to the same demand level as in 2019. Because what we're seeing here is a Covid rebound. We're seeing an opening up of China. And we're seeing people travel more, so jet fuels are in higher demand.

It's all dependent on inflation and whether there's a recession or no recession, but I think on the fundamentals it is not a question of Russia-Ukraine. It is a pure fundamental view of what is energy demand and what is it is going to take to bring us back to those levels. So it actually is a standalone fundamental picture.

I still believe that the main driver of Russia-Ukraine is going to be seen through arbitrage and development in oil prices. So I think that is where we need to keep our eye if we want to have anything valuable to say in 2023 about how Russia-Ukraine is going to impact the tanker market.

So I think, yes, there is a huge possibility that it might result in more tonne miles, and therefore increase demand even further. But there is also the question that, what if Russia does not want to adhere to the price cap and starts cutting their demand? Then that will take a price increase either under the cap, or in the market in general, for them to be able to come back online and drive the demand even further up.

What do you think needs to change in the market in the short term to move rates off of their current floor? Because I know the Asian market rebounded in this past week and there's been a lot of volatility.

I think volatility is going to be the name of the game in 2023. Because the market is tight, it doesn't take much to shock it, and it doesn't take much for the rates to spike.

But I think more than a steady rise, I think what we're looking into is a picture of volatility, and I think that is really going to be the main evaluation when we get to the end of 2023, that it was a rather volatile year, where we did indeed see a lot of the shocks or sentiments that ended up affecting rates.

Does that volatility affect how you position your vessels at all?

You could say yes to that to some aspects. What we would like to drive our fleet by is making sure that we are diversely positioned. We can do that, because of the fleet size that we have. When you drive a fleet, in contrast to being an individual owner, you have an ability to geographically diversify, which means that you will be present in the market when the rates are spiking.

That is what pooling is all about, because it means that all of the partners who have vessels in our pools, they're going to be benefiting from the average of a diversified fleet.

Are there any plans to change the composition of the fleet or any newbuild plans going forward?

No, we wouldn't be doing that in Maersk Tankers. So Maersk Tankers is a pure service company, which doesn't own any vessels. What we look at is optimization on behalf of the shipowners in our pools. And we are very much looking at optimizing across three levels: voyage, vessel and fleet. So from our perspective, when we look at the fleet, it is about making the right commercial choices and choosing the right ship for the right trade every single time we do a fixture, and so that is more the name of our game, because we're a service company.

By Michael Connolly

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