2023 Turmoil


12 months ago, we titled our closing report of 2022 ‘What the hell just happened?’. 2023 has not seen the same degree of volatility but has still been a turbulent year for the oil and tanker markets, with robust earnings for all sectors owing to strong demand growth, tight supply and ongoing trading inefficiencies caused by geopolitical and climate related events.

As the year started, China’s decision to lift it’s zero covid policy in late 2022 gave oil demand a significant shot in the arm, contributing 77% of this year’s 2.3mbd demand growth through an additional 1.78mbd of demand, with the VLCCs feeling much of the benefit.

Following the December 2022 implementation of the crude price cap, February saw the introduction of the European and US embargo on Russian refined products and associated price cap. However, a large distillate stockbuild prior to the embargo and persistent demand weakness capped the upside for tankers throughout 2023. The price cap continued to influence the tanker market during the year, with prices at times trading above $60/bbl, forcing Western players to leave the Russian market. October saw the first US sanctions issued for price cap breaches, although so far most sanctioned tonnage has been linked to Sovcomflot.

By summer, the Panama Canal started to become increasingly problematic for products trade from the US Gulf to the West Coast of Latin America. Transit restrictions, record high auction prices and the associated delays have continued to impact arbitrage, trade flows and tonnage supply, with disruption expected to last well into next year.

In October, terrible events unfolded in Israel, which has had awful ongoing consequences in Gaza. For tankers, the impact on freight rates has so far been limited; however, attacks on Israeli linked shipping have increased, with the risk of collateral damage to other non-Israeli linked shipping ever present. Events in the Middle East also appear to have derailed any chance of sanctions relief for Iran. October also saw the easing of sanctions against the Maduro regime, with rising Venezuelan exports shifting from the dark fleet to conventional tonnage. However, even here, geopolitical tensions remain high, with the Bolivarian Republic threatening to seize large swathes of Guyana. Only time will tell whether Venezuela adheres to its side of the deal, paving the way for more permanent sanctions relief.

November saw perhaps the tensest OPEC+ meeting of the year, which, following extensive debate, saw output cuts rolled over and deepened for Q1-2024. Despite the pledged cuts, prices fell and a small contango emerged in the weeks following the meeting highlighting prompt oversupply. Against a backdrop of OPEC+ cuts, non-OPEC supply has continued to surge. US production grew by 1mbd, exceeding forecasts set in January by 100%. Brazil and Guyana have also made significant contributions to global supply growth.

Despite all the ongoing OPEC+ cuts this year and geopolitical events, oil prices so far have averaged $82.28/bbl, down from $99.04/bbl last year, demonstrating that supply has been adequate to meet demand growth. Refining margins have been very healthy overall, but again have not been as strong as last year. European diesel cracks have averaged around $25/bbl, down from nearly $34/bbl last year, albeit still very strong. Freight rates have also been constrained by narrower arbitrages in 2024, most notably in the refined products sector.

Newbuilding orders this year have reached levels not seen in 8 years, with 291 (>25,000dwt) firm orders for the year to date, despite newbuilding prices gaining 5-8% (size dependent) over the course of 2023. Secondhand prices were more mixed, with modern units generally seeing prices rise by 5-15%, whilst older crude tankers have generally seen values decline – perhaps a sign that Russia has sourced adequate tankers, whilst sanctions relief in Venezuela may also be weighing on trading opportunities for vintage tankers.

Unsurprisingly, with all asset classes making substantial profits and a strong secondhand market, scrapping has been extremely limited. Just 17 tankers (>25,000dwt) have been scrapped this year, mostly in the MR/Handy category.

Overall, 2023 has been another exceptional year for tanker owners with strong earnings across the board. 2024 looks set to be another strong year owing to supportive supply and demand fundamentals. However, with an uncertain economic outlook and a plethora of geopolitical risk, this outlook is far from guaranteed.


Data source: Gibson Shipbrokers