A weak quarter affected by Covid-19
As a direct consequence of the pandemic, we are now leaving another quarter affected by a weak market behind us. The fourth quarter was particularly weak, with rates at record lows. Behind this development is the second Covid-19 wave, which has left the oil market with a subdued rate of recovery in terms of oil production and consumption – and therefore low demand for tanker transport. The conditions for a turnaround are there and we expect a gradual strengthening of the market during the second half of 2021.
The market’s development is, of course, also reflected in our own earnings. Result before tax for the quarter amounted to SEK –86.5 (–29.3) million. EBITDA was SEK –4.6 (62.3) million, corresponding to USD 0.1 (6.5) million. Looking at the year as a whole, we reported a result before tax of SEK –65.1 (–102.3) million. EBITDA was SEK 277.8 (249.5) million, corresponding to USD 30.2 (26.4) million.
In addition to the generally low freight rates, our financial position was also negatively affected by a large-scale drydock program, including significant investments in statutory ballast water treatment systems.
2020 – a roller coaster year
2020 was a special and particularly challenging year, dominated by Covid-19 and lockdowns of society on a scale we have never seen before. If we look at the tanker market’s development, it can be summed up in one word – volatile. This has been a roller coaster year without historical parallel.
At the end of 2019, the entire tanker market was heading into a structural upturn. Freight rates were high and all arrows were pointing in the right direction. Then came the pandemic. Demand for oil fell at the most by approximately 20 percent compared with the end of 2019 and freight rates dropped like stones.
However, the fall was short-lived, as a record-low oil price led to a sharp increase in oil trading – resulting in sky-high rates in the tanker market. This rise, also very short-lived, was not driven by a real increase in demand for oil, but was entirely a consequence of the low price of oil. This resulted in large stock build-ups.
From summer onwards, the combination of stock withdrawals, extremely subdued oil consumption in general terms and massive production cuts resulted in a record-weak market. And although the short upturn in spring helped to balance out the dips to some extent, it was not long enough to create a positive full year result. The entire second half of the year has been extremely challenging and the structural upturn we saw at the end of 2019 has now been delayed by approximately 18 months until the middle of this year, 2021.
We do not therefore expect any significant change in a shorter perspective, but the market is highly likely to remain weak for the rest of the first quarter of 2021. During the second quarter, we believe that the market may show signs of a slight strengthening from low levels. From the third quarter onwards, it is expected that the increase in oil consumption and oil production will have a positive effect on demand for tanker transport.
With regard to demand for oil, we note that consumption continues to recover. With the combination of increased oil consumption and continuing production cuts by the OPEC+ oil-producing countries, the large build up of stocks during spring is now gradually declining. The second wave of Covid-19 means that developments may not really be at the pace we previously expected – but they are clearly going in the right direction. Looking at the supply side, we can see that the total order book for the product tank segment is at about 6 percent of the total tanker fleet, the lowest level in 25 years. Overall, this is expected to result in annual net fleet growth of about 2 percent in 2021 and 2022, including the phasing out of older vessels. This is a historically low level.
For many reasons, 2020 is a year we would rather forget. We now look forward to tackling 2021. A year that will probably also be characterised by volatility. The market has started as weakly as the year 2020 ended, but we believe that the long-awaited strengthening of the market will come in the second half of the year.