Product tanker earnings are projected to decline in 2025, according to Drewry Maritime Research, as concerns about demand and increased vessel supply put downward pressure on freight rates.
The product tanker market has experienced significant volatility since the start of the Russia-Ukraine war. Rates initially surged due to increased tonne-mile demand. However, earnings began to soften in the third quarter of 2024 as demand growth slowed.
Looking ahead to 2025, a wave of new vessel deliveries is expected to further dampen earnings. Approximately 85 product-capable medium-range (MR) tankers and 60 Long Range (LR) tankers are slated for delivery, while scrapping, though expected to increase, is unlikely to offset this influx. Consequently, the product tanker fleet is forecast to expand in 2025.
Oil demand growth is anticipated to be modest in 2025, driven primarily by naphtha and jet fuel, as the energy transition favors cleaner fuels. Growth in diesel and gasoline demand is expected to be stable. While seaborne trade is projected to increase, fleet growth could outpace this expansion, creating headwinds for freight rates.
The clean tanker market also faces challenges from refineries in key importing regions reaching full capacity in 2025. For example, the Dangote refinery in Nigeria is expected to reach full capacity in the first half of 2025, potentially transforming the country from a net importer to a net exporter of refined products. Similarly, the ramp-up of Mexico’s Olmeca refinery could impact US clean product flows and MR tanker demand. While refinery closures in Europe may increase the region’s reliance on imports, the impact on rates is expected to be limited due to weak European demand.
Finally, LR tanker rates have already softened in the second half of 2024, partly due to larger crude tankers entering the clean products trade. A rebound in LR rates will likely depend on a strengthening of large crude tanker rates, which would reduce the incentive for vessels to switch from dirty to clean product trades.
