OPEC+ production increase, Tarrifs and possible Russia-Ukraine truce?
As last week’s update highlighted, OPEC+ announced its plan to unwind its 2.2 mbpd production cuts introduced in November 2023 to stabilize oil prices. Starting in April, output will increase by 138,000 barrels per day, with an increase of an additional 400,000 barrels per day set for December. Clarksons estimates that this will raise tonne-mile demand by 2% to 2.5%, boosting the crude tanker market.
Trump’s tariffs – and their impact on trade flows
On March 3rd, the US imposed tariffs on imports from Canada, Mexico, and China, with 10% tariffs on Canadian energy exports and 25% tariffs on other imports. If Canadian and Mexican crude is redirected to alternative markets instead of being piped to the US, tonne-mile demand could increase by 2% to 2.5%, according to Clarksons. Recent data shows a shift already occurring, with a record 42% of Canada’s total crude exports now heading to East Asia, increasing sailing distances and tanker demand.
Is a Russia-Ukraine truce underway?
The Trump administration is reportedly exploring a peace deal between Russia and Ukraine. Following G7 sanctions that were implemented after the Russian-Ukrainian conflict started, tonne-mile demand increased by 6%. Russian crude flows have shifted to India and China, while Europe sources oil from more distant regions. A potential return to pre-war trade routes presents a downside risk for demand. However, with much of Russia’s crude currently transported on ageing, sanctioned shadow fleet vessels, mainstream tanker demand is unlikely to be significantly affected. VLCCs and Suezmaxes may see limited impact or even a slight benefit, while product tankers could face more downside risk.
Tanker demand may soon outpace supply
With minimal fleet growth expected in the tanker market next year, particularly for crude tankers, we see significant potential for a favourable supply-demand imbalance. These geopolitical and market developments are set to drive increased tanker demand in the coming period.
Source: Clarksons
