14th May 2010 - Mr Product Tankers - A Lot To Talk About

Tanker demand has come under tremendous downwards pressure in the past two years.  There has been some support for VLCCs, Suezmaxes, LR2s and LR1s from floating storage, but for MRs there was no such relief.  However, the driving forces for MR product tanker demand are far more complex than for crude oil; product trade can increase by a lot more than gains in oil demand and volumes in to or out of a country can rise even if its oil demand falls.

Focussing on Asia and looking at the main petroleum products carried by MRs, over the past 2 years Japanese oil demand has fallen by 0.55 million b/d (minus 14%) and yet the combined total of product imports and exports on an annual average basis remained unchanged at around 1.15 million b/d (imports were down by 0.1 million b/d, but exports up by a similar amount).  This illustrates the intricate nature of product trades and that total oil demand can be a misleading indicator.  In the same way, 2009 oil demand in South Korea was the same as in 2007 and yet product import/export trade increased by 20% over the two years, from 1.25 million b/d to 1.50 million b/d.   We are all aware of the rapid expansion in Chinese oil demand and the strategy to build domestic refining capacity to meet these requirements.  However, over 2007-09 product imports were up by 0.1 million b/d and exports increased by 0.2 million b/d.  All this reflects the fact that just because the refining capacity is there, it doesn't mean the supply of each type of product will, or can, be matched exactly with domestic demand.  As a result there will be ‘surplus' products to export and ‘deficit' products to import and that for each country this position will be constantly changing.

Assessing market changes between 2007-09, Asia-Pacific oil demand increased by less than 3% and yet annual average product trade to/from key countries increased by 17%.  Ordinarily this would have led to a stronger MR market, but the market fundamentals in the west have been far weaker than the east AND we have seen a 20% increase in the MR fleet over the past two years.  Nonetheless, product trade in Asia is expected to continue to rise and growth in MR numbers will slow, but not until 2012.  Thus, the basis for an MR turnaround is there, but we will still have to wait awhile.