Concerns about the impact of declining oil prices on the tanker market are growing. According to Gibson, the duration of low prices will influence their implications. While the recent pause in reciprocal tariffs by Trump may stabilize prices temporarily, the ongoing trade conflict with China and existing worldwide tariffs create a risk of further price declines.
U.S. shale producers, particularly in the Permian and Eagle Ford regions, need oil prices around $61-62 per barrel to justify new drilling. Without new wells to offset production declines from aging ones, output may decline further. Recent data already indicate a significant drop in oil rig counts, highlighting this trend.
OPEC+ may be prompted to reassess its production strategies as it too faces challenges posed by lower prices. Although the group is generally more resilient, many member countries depend on higher prices to meet their budgetary needs. Consequently, they might avoid allowing prices to plummet for extended periods.
That said, lower prices can stimulate demand. Major oil importers, such as China, might leverage reduced prices to increase both commercial and strategic petroleum reserves, potentially boosting seaborne trade volumes. However, if the U.S. fills its Strategic Petroleum Reserve at lower prices, this could negatively affect tanker demand, particularly if domestic grades are utilized.
On the other hand, a contango situation may emerge due to an oversupplied market for 2025. Though demand is facing hurdles, it remains to be seen whether storage at sea will become a viable option. Moreover, lower prices might ease trade restrictions with Russia as prices fall below the G7 cap, allowing Western participation in crude exports.
Meanwhile, refining margins face upward pressure, which could lead to reduced operations and even closures of older facilities. Overall, the tanker market is relatively stable for now, but sustained tariff threats and a slow adjustment to shifting demands could lead to increased volatility. The market dynamics remind us that low oil prices may eventually catalyze their own recovery.