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Viewpoint: VLCC newbuilds to limit 2022 clean rebound

  • Spanish Market: Crude oil, Freight, Oil products
  • 30/12/21

An elevated number of expected newbuild very large crude carrier (VLCC) deliveries in 2022 will likely hamper global clean tanker demand, as such vessels often carry clean cargoes on their maiden voyages.

Newly delivered VLCCs often load clean products in either Asia-Pacific, where the vast majority of vessels are built, or ballast from the shipyard to the Mideast Gulf to load a clean cargo and then discharge in the Atlantic basin. This occurs especially when dirty tanker demand is low, which was the case for much of 2021. These clean-carrying VLCCs then typically "dirty up" and begin transporting crude after their maiden voyages.

"There's likely an issue for MRs in the West in 2022," one shipping analyst told Argus, referring to medium range (MR) tankers, which have a typical carrying capacity of 37,000-38,000t and are the backbone of the clean products shipping market. "I think the newbuilds will provide distillate into west Africa and take that away from European refineries and MRs."

One VLCC is able to carry the equivalent of roughly seven MR clean tankers cargoes or about four-and-a-half long range 1 (LR1) clean tanker cargoes.

Between 47 and 48 VLCCs are scheduled to be delivered next year, according to shipbrokerage Simpson Spence and Young (SSY). Comparatively, 33 VLCC newbuilds have been delivered so far in 2021. This means clean tanker rates could face even more downward pressure from newbuild VLCCs intruding into their market than they did this year.

For much of 2021 the new VLCC's cut into clean tanker availability, as 15 2021-delivered VLCCs carried clean products on their maiden voyages, according to Vortexa data. All of them were involved in East-West shipments, loading in Asia or the Mideast Gulf and then discharging in either west Africa, Europe or the Americas.

Similarly, newly delivered Suezmaxes also sometimes carry clean products on their maiden voyages, although not as frequently as VLCCs. One Suezmax is able to carry the equivalent of roughly four MR cargoes or two-and-a-half LR1 cargoes. Between 45 and 47 newbuild Suezmaxes are expected to be delivered in 2022, up from around 20 so far in 2021, according to SSY.

A total of eight Suezmaxes transported clean products on their maiden voyages this year, according to Vortexa data, with each of them executing East-West shipments, similar to VLCCs.

Clean tanker rates will face less downward pressure from clean-carrying dirty tankers in 2023, as the number of VLCC and Suezmax newbuilds delivered then are expected to fall to 21 and 10, respectively, according to SSY. And as nearly all shipyard capacity is currently booked through 2023, it is unlikely that an influx of tankers will be ordered for delivery then.

Clean tanker rates are expected to rise from 2021 levels next year as global oil demand is forecast to increase by 3.3mn b/d to 99.6mn b/d, eclipsing pre-Covid levels, according to the International Energy Agency. Consequently, clean tanker tonne-mile demand is expected to rise by 5.5pc in 2022 after rising by 9.8pc this year, Clarksons Research said. The tonne-mile demand increase is expected to outstrip next year's clean tanker fleet growth, which Clarksons forecast at 1.3pc.

"For tankers, we believe rates will remain volatile in the fourth quarter before increasing during 2022 as global demand, crude oil production, and refinery utilization increase in the coming months," investment bank Jefferies said.


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