Oil tanker market further deteriorates? Floods and a second wave of the epidemic strike
2020-08-03 09:00
Following the impact of the COVID-19 pandemic, China's worst floods in a century and a second wave of the pandemic have significantly impacted crude oil trade and the tanker market. Crude oil shipments to China have fallen to their lowest level since early May, suggesting weak demand and a stark contrast to the buying spree of several months ago.
In a recent report, Poten, a tanker brokerage firm, noted that lockdown restrictions implemented by China in January to combat the pandemic led to a sharp decline in demand for petroleum products such as jet fuel and gasoline. Statistics show that China's oil demand fell by 900,000 barrels per day from November 2019 to January 2020. As the pandemic in China stabilized, demand quickly recovered. However, the new floods will hinder the recovery of China's oil demand in the coming months.
Starting in February, demand for all major petroleum products in China began to gradually recover. In May, the latest data released by Jodi showed that oil demand was 1.5 million barrels per day higher than in November last year, mainly due to increased demand for fuel oil and other products (ethane, lubricants, asphalt, etc.).
From April to May, China took advantage of low oil prices and increased Saudi production to increase crude oil imports. The volume of crude oil cargo loading increased from an average of 10.1 million barrels per day in the fourth quarter of 2019 to 12.5 million barrels per day, and tanker freight rates continued to rise during the same period. To handle the large volume of crude oil, refineries increased their operating rates in June, which also offset the decline in operating rates earlier this year.
However, the severe floods in recent weeks have affected product demand in inland areas along the Yangtze River. Some analysts believe that the floods could reduce China's demand for natural gas, oil, and gasoline by 5%. Domestic refineries are reducing production due to insufficient product storage capacity. This surplus of products may lead to more exports.
Poten concludes that the flood-induced demand reduction will negatively impact the post-pandemic economic recovery, potentially leading to lower crude oil imports in the coming months and bringing some negative factors to the crude oil tanker market, as China's price-driven crude oil purchases in April and May have resulted in high inventory levels. On the other hand, the oversupply of petroleum products will lead to increased product exports and affect refining profit margins, in turn benefiting the refined oil tanker market.
Meanwhile, a second wave of the pandemic is also beginning to impact the tanker market.
Bloomberg tanker tracking data shows that the number of supertankers heading to China has decreased by 12 this week to 111 over the next three months. With global COVID-19 cases continuing to rise and a second wave looming, tanker data illustrates the weakness in demand.
In May, China's oil demand surged to near pre-pandemic levels, and the number of tankers heading to China also reached a record high. China's demand exceeded that of Europe and the US, and the buying spree boosted the physical price of Asian crude oil and supported the oil price rebound.
Now, the resurgence of the virus and the floods in the Yangtze River basin are forcing people to stay home again. China's oil demand appears to be slowing, and physical prices are falling. The reduced number of tankers heading to China highlights the weak buying and indicates that China's imports are declining.
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