Why a coming trough may not be bad news for tankers

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The bears are coming to the crude tanker markets. But optimists can rightly claim that they are tamer than before, and that they may not stay long.
This is because the current down cycle, which began last year, could see its trough in the second and third quarters of this year, after which the pace of newbuilding deliveries will slow down and scrapping might pick up.
But owners will first need to face downwards pressure on freight earnings in the coming months due to oil refinery maintenance, new tonnage and the production cuts of the Organization of the Petroleum Exporting Countries, according to market participants.
Very large crude carrier, suezmax and aframax time charter equivalent earnings could dip below operating costs occasionally, some analysts said, but not for long, unless market conditions take an unexpected turn for the worse.
The predictions, should they materialise, would suggest that owners will escape from the worst: in the previous down cycle seen earlier this decade, years of earnings below operating costs pushed even big players like Frontline into restructuring mode.

The largest near-term pressure on earnings could come from heavier-than-usual refinery maintenance in Asia, the world’s largest crude oil importing region by far, according to analysts with Ocean Freight Exchange and Maritime Strategies International.
Based on OFE data, a total of 4m barrels per day of crude processing capacity will be offline in China during March to June, 1.6m bpd in Japan and 673,700 bpd in India.
“We are only just getting started with a new kind of freight market — one that is not supported by high refinery throughput on the back of solid margins,” Bimco chief shipping analyst Peter Sand told Lloyd’s List.
With rising oil prices and oversupplies of gasoline and diesel, Asian refineries are finding opportunities to take some units offline for periodic maintenance as their production margins come under pressure.
“As the global oil market continues to rebalance and stocks draw, crude oil prices should move higher going into the summer… keeping margins under pressure,” Bank of America Merrill Lynch said in a note.
Fortunately for tanker owners, this bearish factor will be removed once the turnaround season is over.
“We do expect some uplift to kick in in the spot market towards the end of second quarter as refinery maintenance