Tanker A year of opposites 2020 will live long in the memory of tanker market participants as rarely have seasonal norms been turned on their heads and extreme highs and lows been touched within the same 12 months. Although the impact of the Covid-19 pandemic cannot be underestimated, the impact of Saudi Arabia instigating an ill-fated brutal battle for oil market share against the backdrop of cratering global oil demand should not be forgotten. This proved to be the catalyst for the chaos which filtered into all tanker segments from small tankers to VLCCs and from which markets have yet to truly recover. FRONT CORAL Suezmax tanker, 157,522 dwt, delivered in 2017 by New Times SB (China), operated by Frontline. 67 TANKER TANKER MARKET OVERVIEW MARKET OVERVIEW SpotTANK TankerER SPOT Time RATESCharter -equivalentTCE Earnings Extremely low crude prices also encouraged refiners to run at strong rates 2020 (-14 units y-o-y). Indeed, against this backdrop $/day *TD3C at $300,000/day over the second quarter. Considering the background of plummeting demand, and considering that global tanker demand remains $/DAY in October 2019 these products swelled inventories and tank tops came under extreme significantly below pre-pandemic levels, almost all 250.000 pressure at key terminals. Similar to the crude segment, this led to a large segments are currently overtonnaged. Considering our tranche of the CPP tanker fleet being secured under short time charters for projection that tanker demand will remain curbed this floating storage. Meanwhile, other waited for weeks or even months outside year, this suggests that something must give on the 200.000 key terminals for tankage to become available so that they could discharge supply side. To this extent we expect that a prolonged their clean cargos. The impact of this tonnage cannot be underestimated as it period of extremely low hire rates will lead to an uptick helped to propel hire rates for CPP tankers into the stratosphere. in demolition, the cumulative effect of which should 150.000 support rates later in 2021. Indeed, if this were to Since late June, it has all been downhill for the tanker market. Tanker demand coincide with seasonally stronger tanker demand at dropped as Saudi Arabia swiftly halted its battle for market share while this 100.000 end-year, there may be light at the end of the tunnel. also saw the OPEC+ Alliance revert to their market management role and cut a record 9.7 mb/d of crude production. Both clean and dirty tanker 50.000 demand has collapsed in the wake of oil demand trending significantly below its pre-pandemic level. Meanwhile, the record oil inventories built over 1H20 are now being steadily drawn which is substituting oil imports Annual Tankers*tankers* deliveriesdeliveries Annual tankers* deliveries 0 for oil already in inventory. As crude prices moved higher in 2H20, this N° of ships 2019 2020 saw contangos in crude and product markets narrow and eventually return N° of ships to backwardation which, in turn, has driven traders to offload much of 450 their floating storage. In turn, this has hit the tanker market with a ‘double 450 VLCC (TD3C) Suezmax Basket Aframax Basket LR2 (TC1) LR1 (TC5) MR Atlantic Basket 400 Jan 2019 Jan 2021 whammy’ as volumes previously held in floating storage are replacing oil 400 imports while the tonnage is re-entering an overtonnaged tanker market 350 VLCC (TD3) -TCE Suezmax Basket - TCE Aframax Basket - TCE LR2 (TC1) - TCE LR1 (TC5) - TCE MR Atlantic Basket 350 and thus adding to the downward pressure on hire rates. As such, with very 300 few exceptions, hire rates trended at close to record lows over 2H20 with 300 no traditional 4Q bounce. 250 By mid-February, the world was waking up to the menace posed by Covid 250 MARKET OVERVIEW as it spread well outside Asia and initial projections of a gentle deceleration 200 As we turn our attentions to 2021 it is undeniable that the tanker market is 200 in global oil and tanker demand growth along the lines of the 2002-03 not in a good place with rates for many tankers currently plumbing multi- 150 The year started as 2019 had ended, that is to say, in SARS outbreak proved to be wide of the mark. As the world was starting to year lows. However, we suggest that the stars are starting to align which 150 100 chaotic fashion, as 0.5% sulphur bunker prices surged in be locked down, especially in the east, oil demand contracted at a rate of could provide some respite for owners later in the year. Nonetheless, as 100 the wake of tight supply while at many bunker terminals, knots, crude prices softened, and markets flipped into contango which was the tanker market continues its long and difficult road towards its pre- 50 50 ships experienced long waits while securing these fuels. music to the ears of traders and charterers. pandemic level there will undoubtedly be several bumps it will have to Panamax 4 Time Charter rates average 2020 0 On the other hand, following the roller-coaster ride, which Panamax 4TC rates and average 2020 negotiate first. 0 Against the backdrop$/Day of the Covid outbreak evolving into a full-blown 2000 2005 2010 2015 2020 was 4Q19, there were initially expectations that tanker $/day 2000 2005 2010 2015 2020 pandemic, early March saw Saudi Arabia fire the first shots in a battle for In early 2021, global oil demand remains around 7 mb/d below its pre-pandemic markets would weaken as the US and China improved their 16,000 oil market share after OPEC and their non-OPEC partners were unable to level but as vaccines are rolled out over the next twelve months, we project that Annual tankers* demolitions relations which saw the US withdraw the sanctions it had Annual Tankers*tankers* demolitionsdemolitions agree on their future output strategy. This saw Saudi Aramco hike their by the end of the year, this gap could be reduced towards 2 mb/d. However, previously placed on a major Chinese shipowner. 14,000 N° of ships crude exports by almost 3 mb/d to a hit record 10.2 mb/d in April with forecasting continues to be a hazardous business considering that significant 160 other producers12,000 swiftly following suit. As Saudi dipped into spot tanker uncertainty and downside risks remain, especially surrounding the speed 160 markets and hired a dozen VLCCs, this helped propel VLCC tanker rates and efficacity of the vaccine rollout. Furthermore, oil supply should steadily VLCC Suezmax Aframax LR2 140 back towards 10,000the stratospheric levels of $200,000/day seen over 4Q19. As 140 Total* oatingLR1 storageMR2 MR1 increase this year in tandem with demand. This will see OPEC+ gradually was the case at end-2019, high rates eventually filtered down to smaller increase their production and exports from 2Q onwards. Meanwhile, in the 120 Total* floating storage 8,000 120 Million barrels tankers. However, perhaps the biggest impact this huge increase in oil wake of Saudi Arabia’s recent decision to defend prices over market share, US 100 exports had, was that it saw global onshore storage capacity come under 100 Million barrels *includes crude, CPP and fuel oil 6,000 production is now forecast to rebound faster than previously expected which Crude Tankers Less than 12 months 12 months and longersevere pressure during the second quarter. In turn, this drove crude prices coupled with US – Chinese relations remaining steady should se more US crude 80 350 80 Product Tankers Less than 12 months 12 months and longerlower and by 4,000late April the mounting panic over access to storage was imported by China, thereby supporting ton mile demand. On the refining side, source: Alphatanker illustrated by NYMEX WTI prices dipping into uncharted negative territory. 60 300 NP runs will gradually pick up as the inventory overhang is depleted which will 60 2,000 add to CPP tanker demand. However, a caveat remains over how refining in As panicked traders looked for places to store both crude and products, 40 250 Europe will recover. If currently shuttered European plants do not reopen, this 40 tankers become 0increasingly attractive which saw a huge swathe of the could open the door to an increase in long-haul middle distillate imports from 20 200 fleet secured underJan short Feb (3Mar toApr 12May months)Jun Jul timeAug charterSep Oct deals. Nov Dec In turn, 20 Jan Fev Mar Apr May Jun Jul Aug Sep Oct Nov Dec East of Suez. vessels used for floating storage led to less tonnage available for general 0 0 150 trading which helpedBP I-toTCA support spot hire rates during the early part of 2Q. Finally, the supply-side picture remains delicately poised. Last year saw 2000 2005 2010 2015 2020 XXX ? 2000 2005 2010 2015 2020 By this point China was starting to emerge from lockdown and its refiners 172 new tankers of 34,000 Dwt or above delivered, the lowest since 100 accordingly ramped up activity. Its hawkish traders also saw value in 2017 and 77 units less than 2019. Indeed, all tanker segments saw lower VLCC Suezmax Aframax LR2 extremely low crude prices and consequently upped their purchases from VLCC Suezmax Aframax LR2 50 deliveries year-on-year (y-o-y) bar Suezmaxes. That is not to say that fleet Panamax LR1 MR2 MR1 Panamax LR1 MR2 MR1 all over the globe, but especially the Atlantic Basin, which helped to add to fundamentals remain tight considering that demolition dropped off a cliff Panamax LR1 MR2 MR1 0 ton mile demand for all crude tanker segments from Aframaxes upwards.