The first quarter of 2024 saw a great deal of movement and disturbance in the crude oil market, mostly due to strategic production adjustments and geopolitical conflicts. Rising tensions in the Middle East and noteworthy disruptions to Russian refinery operations marked the beginning of the period, which had a major effect on supply limitations and general market circumstances.
Even while the outlook for the world economy was generally good, a slump in OECD countries in particular, moderated the increase in demand for crude oil globally. Non-OPEC+ nations, especially those in the Americas, significantly increased output on the supply side, indicating a move towards a greater reliance on non-cartel sources.
The crude oil sector faced a challenging environment in the first few months of 2024 as it navigated growing geopolitical unrest, OPEC+- mandated production restrictions, and shifting demand patterns. These factors all pointed to a period of cautious strategic adjusting and watchful expectations.
Taking a look at the crude oil trade during the first quarter (Q1) of 2024, volumes amounted to 618mt, which is similar to the previous quarter (Q4) and slightly up from the first quarter of 2023 as well. This indicates that crude oil trade remains resilient and robust even though the aforementioned challenges. So far this quarter, oil shipped was 36% of what has been shipped Q1, with more than 2 months to go. Again, the top three exporters, throughout 2023 and the first months of 2024 are Saudi Arabia, the US and Russia, with that order. At the other end of the trade, unsurprisingly are China and India, countries that represent almost 29% of the crude oil trade in Q1 2024. Other countries in the top importers of crude oil during Q1 were S. Korea, Japan and Singapore, Malaysia and Thailand, all of which are countries in Asia, the region that is expected to lead crude oil demand growth in the coming years, According to IEA, global oil demand is expected to grow by 1.2 mbd and 1.1 mbd in 2024 and 2025 respectively, while as the data validates, the bulk of demand will come from Asia.
As far as production is concerned, OPEC+ holds back 5.86 mbd or about 5 -6% of daily world demand, while countries like Brazil and Canada are expanding production and exporting capacity with projects like the TMX pipeline. The geography of increased production and demand suggests that crude carriers will need to travel bigger distances supporting freight rates.
Shipowners seem to second that narrative and it shows in the fundamentals of the tanker market and VLCC in particular. A total of 30 vessels changed hands during Q4 2023 and 13 vessels in Q1 2024. Similarly on newbuildings, a total of 24 VLCCs have been contracted in Q1 2024, with the majority of vessels to enter the current fleet in 2026 and beyond.
At the time of writing, the Orderbook-to-fleet ratio stands at just 5%, meaning limited fleet growth in the coming years.
To sum up, the current situation, with increasing oil demand along with increasing distances between supply and demand combined with limited fleet growth, sets the stage for elevated rates for longer, while further increase are expected as well.
Data Source: Intermodal