Opec+ cut effect on tanker markets probably muted
The voluntary crude output cuts announced by Opec+ this week for the first quarter of next year are unlikely to seriously depress tanker rates because of seasonal effects and greater demand for freight from producing countries outside the alliance.
Six Opec+ members agreed to 700,000 b/d worth of voluntary crude production cuts in the first quarter of 2024, and Saudi Arabia said it will extend its existing 1mn b/d cut over the same period, all in addition to a previous round of voluntary cuts announced in April.
Very large crude carriers (VLCC) may under-perform other segments in the near-term as the largest output reductions are in the Mideast Gulf, a major loading region for the 2mn bl tankers. The cuts imply seven to eight fewer VLCCs needed for the first quarter of 2024, according to bank Jefferies.
But with very few new tankers joining the global fleet because of record-low newbuilding orders, the arrival of the seasonally-strong winter period, and disruptions such as the Panama Canal logjam, rates are likely to be well-supported, especially for midsize crude and product tankers.
Production cuts this year have not necessarily meant a reduction in exports. Speaking before Opec's announcement, shipowner Frontline's chief executive Lars Barstad said "output and production are not exports."
"What we've experienced since August this year, for instance from Saudi Arabia, is that their exports have actually increased," he said. "Also, if we look at… all Opec producers, we've actually seen the same trend… Middle Eastern exports are actually more correlated to the temperature in the Middle East over the summer when they consume a lot for cooling, rather than the stated kind of production quotas."
Tankers are less sensitive to Opec+ decisions given crude production growth elsewhere. The new cuts will be in place for 91 days, presenting a short-term headwind for tankers, but Jefferies said with crude production from outside Opec+ forecast to ramp up by 1.2mn b/d between April and September 2024, an unwind of the latest cuts in that period could create a significant increase in cargo volume.
"It's oil revenues that is what really matters for [Opec+ members]," Frontline's Barstad said. "And commitment to balance in the oil market is probably difficult for Opec, considering all the alternative sources of crude we currently have", pointing to supply from the US, south America, the North Sea and west Africa.
With east Asia the centre for demand, the number of long-haul voyages will likely increase.
"I'm tempted to say [the Opec+ decision is] flat out positive," Barstad said.
By Matthew Mitchell