OPEC+ could become the trigger for a positive shift in the tanker market, although many cogs still have to be turned before things fall into place, thinks Lars H. Barstad, CEO of Norwegian tanker carrier Frontline.

Barstad said so during a panel debate at Capital Link's conference International Shipping Forum, while talking about this week's negotiations in OPEC+.

"1.5 million barrels could be a trigger for a sentiment shift in the tanker market. We've already seen certain pockets in the market be released relatively quickly. That could lead some shipowners, looking at their TCE rates, to consider whether instead of selling their ships right now, they should wait until the market recovers," says Barstad.

The Organization of the Petroleum Exporting Countries, OPEC, and its allies in OPEC+ are meeting Thursday to agree on a potential easing of the production limitations adopted last year to prevent a total collapse of the oil price.

That mission seems to have been successful. In 2021, the oil price has so far seen a decent increase, partly driven by the production limits and partly by an increase in oil demand, largely caused by the roll-out of Covid-19 vaccination programs.

For this reason, OPEC+ is considering whether to increase production to 1.5 million barrels per day. According to Bloomberg, this could be done by OPEC+ maintaining its planned increase of 500,000 barrels per day at the same time as Saudi Arabia phases out its self-imposed production reduction of 1 million barrels per day.

"OPEC+ is carrying out a balancing act right now. They want to bring down oil inventories, but they also want a new improvement in the market. They want healthier oil prices, while keeping the US fracking industry out of the equation at the same time," added Barstad during this week's virtual Capital Link conference.

Belgian tanker carrier Euronav is also keeping an eye on OPEC+ this week but points out that demand for oil continues to be a prerequisite. According to Euronav's CEO, the assessment currently is that "demand will not return until the end of the year and before the start of next winter."

"Before Covid-19, we'd reached a consumption of 100 million bpd. We have to see what happens at the OPEC+ meeting and the signals from there. It's difficult to set a day for when we'll be back to some form of normalization, also for oil demand," said Hugo de Stoop during the conference.

An "explosion" in traveling

"Everyone's currently waiting for the vaccine programs to be successful. We think that restrictions will ease during the summer, after which people will return to some form of normality. It'll be a new definition of what we perceive as normal," he added.

Once Covid-19 restrictions are gradually eased in countries around the world, once contagion is under control and people have been vaccinated, the increase in the urge and need to travel for both normal citizens and business people could be explosive.

"From that point [the summer, -ed.], we expect a strong improvement in oil demand because people are once again able to travel. That goes for both tourists and business professionals. We might expect an explosion the other way after people have been subject to so many restrictions for a period and being unable to travel," said de Stoop. 

A "dream scenario" with scrapped vessels

According to the Euronav CEO, oil demand is, of course, an important catalyst for a possible upturn in the tanker market.

"The other is how many ships are being scrapped in the meantime. Because when the market is very weak, it is possible that people can't afford to maintain very old ships and reintroduce them in the market following a very expensive review."

If net fleet growth can be kept down, for example by retiring old vessels to recycling yards, it would be very positive, says de Stoop.

"Just this year, we've already seen 11 ships be scrapped, including the six announced by Cosco. If you extrapolate that 11 ships are expected to be scrapped after two months, it becomes 60 ships in a year. That would be a dream scenario," says the Euronav executive.

English Edit: Ida Jacobsen

Frontline looks into muted tanker market from the start of the year

Euronav CEO awaits normalization of global oil markets after tough months

Analyst firm projects the tanker market will bottom out in first half of 2021