Oil product tankers earnings are at the lowest since the third quarter of 2014 according to the latest report from BIMCO as the sector's fleet continues to grow.
The oil product tanker market reached a net fleet growth of 4.3 million DWT so far in 2016 driven by MRs and LR2s, BIMCO said.
With a net fleet growth of 5.8 per cent in 2015, the oil product tankers are looking to continue the trend of elevated supply growth with 3.0 per cent growth so far in 2016 – for the full year BIMCO expects 6.0 per cent.
"The LR2s and MRs are the leading segments for fleet growth in the oil product tanker market – in percentage as well as DWT in 2014 and 2015," BIMCO chief analyst Peter Sand said.
"This trend continues into the first half of 2016. Based on the current and anticipated new orders, BIMCO expects the net fleet growth in 2016 to be around the same level as in 2015 and likely to come down in 2017.
"The earnings have been in decline since the beginning of 2016 and are actually at the lowest since Q3 in 2014. The reason for the decline is a combination of fleet growth alongside the deceleration of oil product stock building that was seen at the end of 2015 and early 2016. This is diminishing demand growth. While oil product production has been running ahead of end consumption, oil product tanker demand has risen above trend".
All four oil product tanker segments have experienced an overall decline in earnings in 2016, with the LR2 seeing a 54 per cent decline from US$33,966 per day from January 1, 2016 to US$15,703 per day on June 24, 2016.
"Due to our expectations that the freight rates would decline, we recommended back in January to fix some capacity on longer timecharters for companies with a high exposure to the spot market. We still see this need," Peter Sand added.
"As the spot rates are declining it is important to manage your risk and exposure to the market, as earnings could drop even further."
