Thorleif Thorleifsson

Market Commentary: Inefficiencies and Dislocations

The main shipping markets are characterized by near perfect competition and therefore it is always interesting to observe both the dynamics and speed of adjustments to new market forces. This applies especially to the current market environment of war and pandemic.

Market’s inherent dislike of uncontained risk sent oil prices to nearly USD140 beginning of March 2022. As sanctions following Russia’s invasion of Ukraine threatened the future of Russian oil exports the worst outcome was quickly discounted. Oil price volatility doubled as measured by the OVX. Interesting to note that oil price volatility reached similar heights in November last year. The result was however completely different. Instead of supply side uncertainty we have experienced with the Russian invasion, volatility was triggered by perceived demand issues last year. The volatility effect is therefore entirely opposite (return to “normal” and lower volatility this time means lower prices). Since reaching nearly USD140 the oil price has started to ease and is now quoted at close to USD105. 

Oil prices (Brent) and volatility (OVX)

Source: FRED, Maritime Optima

The perceived huge effect on export volumes has seemingly not arrived just yet. Tanker liftings are basically flat through March this year. Numbers are showing that Europe’s share of Russian exports is dropping, but at the same time volumes headed to Asian are increasing. As reported in the news there has been a reaffirmant of Russo-Indian and Russo-Sino relations, which are also likely takers of the oil. As there seems to be some willing buyers, risk of a total collapse in Russian oil exports are easing and therefore oil prices are easing in parallel. Note also other supply adjustments such as additional US SPR release and political rapprochements with the West and Venezuela and Iran has possibly helped to ease tensions.

Tanker liftings, market share ex-Russia

Source: Maritime Optima

If the effect on the tanker market is not through volumes transported (yet) there are inefficiencies building up in the system. For the case of tankers it is most notably the Suezmax market.  Statistics are starting to show that the speed of the Suezmax fleet is beginning to accelerate. We also observe that tanker earning for Suezmax’s especially is driving the market. Main reason being, carrying crude ex-Black Sea to the Far East is further than to European destinations. Crude quality issues are also leading to dislocations or rearrangement in terms of trade. The net effect on the tanker market is clearly positive and is sorely needed. Earning have been languishing at suppressed levels ever since the COVID induced floating storage boom ended.

Speed: tankers

Source: Maritime Optima

On another note and a different market we observe container box rates are beginning to come off, as indicated by the SCFI (Shanghai Containerized Freight Index). Measurements of the container fleet speed is also showing decreases pointing to a significant available capacity in the container fleet once bottlenecks, such as congestion is resolved. The container market is also facing headwinds with renewed COVID lockdowns in China and further down the time-line trade growth is likely to slow as the global economy is decelerating with central banks tackling run-away inflation. 

Speed: container vessels

Source: Maritime Optima

Containers: SCFI

Source: Shanghai Shipping Exchange

Market environments such as the current we are passing through has often given a boost to shipowners, but as always there are exceptions to the rule. The main transmission mechanisms are not always direct, but through inefficiencies such situations produce, whether it be longer distances, more congestion and other twists in the normal modus operandi. Over the last month, which seems like a year, tanker owners have seen some benefit, while containers have been moderately negative impacted.

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