Tanker Shipping's Fortunes Rest on U.S. Shale Oil Production

How much shale oil production is taken out of service is going to be a key driver of future tanker shipping earnings

London, UKJune 3, 2015—How much U.S. shale oil production is taken out of service is going to be a key driver of future tanker shipping earnings, according to the latest edition of the Tanker Forecaster, published by global shipping consultancy Drewry.

Tanker operators are pinning their hopes on a rise in U.S. crude oil imports as domestic shale oil extraction becomes increasingly unprofitable. Low oil prices are making crude extraction unprofitable for many U.S. producers, leading to a fall in U.S. rig counts, and shrinking exploration and production investment.

“Continued expansion of refinery capacity in Asia is likely to maintain growth in the global oil trade over the next five years,” said Rajesh Verma, Drewry’s tanker shipping lead analyst. “But demand from Asia alone will not be sufficient to sustain the improvement in tonnage utilization. The only alternative source of growth is a recovery in U.S. oil imports, especially when declining European refinery capacity will mean lower import volumes to European Union countries.”

Following two years of slow growth, the global trade in oil accelerated over the past nine months due to increased stocking. And Drewry expects this trend to continue through to the end of 2016. However, thereafter we expect the influence of stocking activity to wane, and hence continued development in trade will depend on rising Asian demand and a recovery in U.S. imports.

On the supply side, tanker fleet growth is expected to remain muted in 2015, growing at just 1.3 percent year on year, before gathering momentum in 2016, when vessel deliveries are expected to rise over 60 percent compared to this year. Buoyant fleet growth may also be supported by a slowdown in scrapping activity.

“Large vessels dominate the order book and this is a reflection of the expected increase in long voyage trades,” added Verma. “And next year’s opening of the widened Panama Canal will further support demand for the bigger classes of ships.”

Tanker vessel earnings are expected to remain strong on ample oil supply and the resultant softness in bunker prices.

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