LectureSHIP: Oil Tankers

Typically, road and air transportation consume more than half of the annual oil production globally. In a mid-pandemic world, however, both air and car travel has significantly declined—with a full recovery barely on the horizon. There is no denying that this reduced demand for crude oil production is hurting the tanker market. Tanker owners are relying  on a spike in demand going into 2021 when traveling hopefully will return to more normal levels. 

The question then becomes, however, what is normal? Are we talking about a pre-pandemic normal or a new normal? And if it is a new normal, what will this new normal look like? To explore what the new normal may mean for shipping, you need to start with oil, as it’s the most beleaguered of the commodities. Oil consumption waned prior to COVID-19, as the world increasingly embraces Environmental, Social, and Corporate Governance (ESG) considerations, as well as sustainable investing. Big oil and automakers are pumping hundreds of billions into renewables and electric vehicles, respectively, heralding the beginning of the end for fossil fuels.

Many of us have been working from home for much of 2020 and we’ve come to realize that video conferencing is not only effective, but also efficient; much of our daily travel was probably non-essential. We’re now starting to question the norm of a daily commute to sit in front of a computer or jumping on a plane to meet with someone then flying right back. There is no denying that face-to-face meetings are important, but fewer would suffice. With that, we are beginning to differentiate between essential and non-essential meetings and travel. Some predict that as much as 50% of business travel and over 30% of days in the office will disappear. The winds of change are shaping the new normal.

This demand shockwave has also changed the global refining landscape insofar as it is shaped by decisions in the West—Europe and the United States to close refineries, while Asia and the Middle East continue to expand their refining capacity. The shift in trade patterns is expected to add ton-miles, which will likely benefit the tanker industries, but the radically reduced consumption will mean a reduction in the global tanker fleet. We believe this Darwinian evolution of the survival of the fittest will present Yieldstreet Marine with opportunities to fund distressed asset opportunities for astute tanker owners capable of fixing and operating their ships profitably.

Sources:
Nature: How the pandemic might play out in 2021 and beyond, Megan Scudellari.
Reuters: Analysis of 29 global automakers
Business Insider: Bill Gates says in-person meetings aren’t the ‘gold standard’ anymore and that 50% of business travel will go away even after pandemic
Poten & Partners: Poten Tanker Opinion

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