Following a sharp decline in crude tanker freight rates seen during 2017, the rates are set to further drop in 2018 amid an expected slowdown in China’s crude stocking activity, shipping consultancy Drewry said.

Although tonnage supply growth in the crude tanker market is expected to come down to 3.2% in 2018 after surging by close to 6% each year in 2016 and 2017, this will not be enough to push tonnage utilisation rates higher as demand growth is expected to be sluggish.

The rates will continue to drop next year on account of a slowdown in crude oil trade growth as global oil demand growth is set to fall to 1.4 mbpd in 2018 from 1.6 mbpd in 2017. In addition to this, a likely slowdown in China’s stocking activity poses a big risk to tonnage demand in the crude tanker market.

China’s stocking activity, which remained one of the leading factors behind the strong growth in the crude oil trade over the last two years, may fall significantly in 2018.

According to the IEA’s data on China’s implied stock changes, the country should have accumulated close to 520 million barrels since 2015, well above the total special petroleum reserve (SPR) capacity that was supposed to fully come online by 2020. A sharp decline in stocking activity in the third quarter of this year to 0.5 mbpd from 1.2 mbpd in the second quarter suggests that a significant decrease in the inventory build-up by China could be witnessed in 2018.

“We expect China’s stocking activity to decline to 0.25 mbpd in 2018 from an average 0.75 mbpd in 2017, curbing global trade growth,” Rajesh Verma, Drewry’s lead analyst for tanker shipping, said.

The anticipated decline, added to a slowdown in worldwide oil demand, “will keep global crude oil trade growth modest in 2018, which in turn will keep rates under pressure despite some slowdown in fleet growth,” Verma added.