Tanker Market Insight January Research Department, Strategic Development

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1 Tanker Market Insight January 18 Research Department, Strategic Development

2 Dec-16 Jan-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17 Dec-16 Jan-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17 $ s / day $ s / day Monthly Summary December review: Earnings continued to trend downwards for all segments during December, counter to normal seasonal patterns. In fact, it was the worst December for mid-size tanker rates since the early 199s, and for VLCCs it was the worst December since the 198s. High compliance with OPEC production has limited the supply of cargoes out of the Middle East and put continued negative pressure on the VLCC market. This in turn has forced more VLCCs into the Atlantic where they are competing with Suezmaxes for West African cargoes (which then forces more Suezmaxes to compete for Aframax cargoes). An oversupply of tonnage, combined with unseasonably mild weather in the MED and North Sea, further impacted the mid-size tanker market during December. Rates found some relief in the US Gulf, where weather and ullage delays created some volatility in the early part of the month. January outlook: We anticipate that rates will continue to struggle in January and will remain relatively flat across the board. Low OPEC output is expected to keep VLCC rates low, which will also impact Suezmax rates as they compete for cargoes. Weather and ullage delays may help support rates, however the typical winter delays have been less impactful thus far when compared to previous winters. Wild cards: US congress is expected to make their decision at the end of the week on whether they will enforce sanctions on Iran in relation to the 15 nuclear deal. Iran has also been dealing with civil unrest and protests, which could influence how foreign governments treat Iran, depending on the Iranian government response. Venezuela continues to be a wild card as they struggle with economic and political uncertainty. Venezuelan oil production has fallen to 1.8 mb/d, which is the lowest since the late 198s (not counting the brief dip during the 2 workers strike) Clean Spot Rates LR2 MR Crude Spot Rates Aframax Suezmax VLCC 5 2 Source: 9% of Clarksons Source: 9% of Clarksons A disappointing end to 17 with rates down across the board

3 Spot Market Review and Outlook Segment Nov 17 Dec 17 Spot Rates ($/day) Source: 9% Clarksons December Review January Outlook VLCC 16, 9, Suezmax 15, 15, Aframax (Pacific) Aframax (Atlantic) 11,6 9,, 9, VLCCs struggled in the month of December with average earnings falling below $, / day (worst December since the 198s!). OPEC cuts were the main factor, with OPEC output in December falling to the lowest since May 17. A weak VLCC market ex-meg (see above) has pushed more VLCCs into the Atlantic basin to compete with Suezmaxes in West Africa, which has had a negative impact on Suezmax demand. A lack of significant weather delays through the Turkish Straits, which are typical at this time of year, further prevented any upside to rates. A lack of weather / ullage delays and relatively soft demand put pressure on Pacific Aframax rates during December. An increase in bunker prices further ate into TCEs, with bunkers at Singapore rising to a 3-year high of $39/t by month s end. December started strong in the USG/Caribs due to weather and ullage delays, but eased later in the month. The European market remained depressed with rates sub-$,/day, due in part to an oversupply of tonnage due to the US export trade. OPEC unity appears to be strong, despite rising crude oil prices, and we therefore expect that Middle East cargoes will remain constrained during the early part of 18. This will continue to put negative pressure on VLCC spot rates. Newbuild deliveries delayed from December may put downward pressure on Suezmax rates in the early part of the year as they enter into the fleet. Low VLCC rates and ongoing competition for cargoes out of West Africa may also keep rates from seeing any upside during January, though bad weather could be a positive factor. Pacific rates are expected to remain relatively flat at the start of 18 (absent any weather / ullage delays), though an increase in crude imports from Chinese teapot refiners may give some stimulus to regional demand during 1H-18. The return of fog in the US Gulf has led to an uptick in USG / Caribs rates at the start of January, and could offer support to rates throughout the month. The Forties pipeline has come back online following a stoppage in December, which could be positive for Aframax demand in NW Europe. LR2 11,4 8,8 LR2 rates fell to the lowest since July 17. Reduced cargoes out of the Middle East due to refinery maintenance and a weak West-East naphtha arbitrage were the main culprits. The LR2 market is expected to remain weak in the early part of 18 due to Middle East refinery maintenance, a lack of arbitrage opportunities, and competition from NBs for back-haul cargoes. 3 Slow start to 18; perhaps some upside to Atlantic Aframaxes

4 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Time Charter Market $ s/day $ s/day Clean 1 Year Time Charter Rates MR LR Crude 1 Year Time Charter Rates Aframax Suezmax VLCC Source: Average of Clarksons, Braemar ACM, and Poten Source: Average of Clarksons, Braemar ACM, and Poten Broker Assessed Time Charter Rates 1 year time charter rates ($/day) 3 year time charter rates ($/day) Nov 17 Dec 17 Nov 17 Dec 17 VLCC 28, 25,7 29, 29,7 Suezmax 17,7 17,,7,7 Aframax 15, 15,7 17, 17, LR2 14,7 15, 16, 16, MR 14,2 14,2 14,7 14, Source: Average of Clarksons, Braemar ACM, and Poten 4 VLCC 1-year rates came off sharply on a disappointing winter spot market

5 Million DWT S&P Market and Fleet Statistics S&P Activity Euronav and Gener8 have merged in a stock-for-stock exchange of approximately.7272 Euronav shares for each Gener8 share. This represents a 35% premium to GNRT s previous day share price. Gener8 has vessels (21 VLCC, 6 Suezmax, 1 Aframax, 2 Panamax) with a Clarksons valuation of approximately USD 1.8 billion. The combined entity will have 75 tankers. Gener8 shareholder approval is pending at the moment, but a group of shareholders, representing approximately 48% of the outstanding shares of Gener8, are expected to vote in favour of this merger, subject to the terms and conditions contained in voting agreements with Euronav. The merged entity has agreed to sell 6 modern VLCCs to International Seaways for USD 434M en bloc. INSW will operate 54 vessels with an average age of 9.3 years. The price is in line with broker assessed values based on 18 values. The Aframax Vega Voyager (Samsung/3) has been sold for $.7M. This is in line with last done, the Singapore Voyager (Namura/3), which was sold in November 17. NB 5yr yr 15yr Asset Values (USD million) VLCC Suezmax Aframax LR2 MR (+3.) 26. (+4.) (+1.5) 44.5 (+.5) (+3.) (+.5) (+3.) 12. Source: Clarksons Note: values in brackets indicates change from last month 34. (+.5) (+1.2) Total Tanker Fleet Growth Scrapping Deliveries Net Growth (% of Fleet) % 5.8% 3.8% 6.% 4.8% 3.2% 8% 6% 1.7% 3.2% 1.8% 1.3% 4% 2% % -2% -4% Fleet Statistics The tanker fleet grew by 26.6 mdwt, or 4.8%, in 17, down from growth of 31.4 mdwt, or 6.%, in 16. A surge of scrapping at the end of the year, coupled with lower deliveries as Owners looked to defer delivery, caused the tanker fleet to shrink during December. Tanker deliveries are expected to fall to ~ mdwt in 18 from ~38 mdwt in 17 while scrapping is expected remain steady at ~11.5 mdwt. As such, we expect that tanker fleet growth will fall to ~3.2% in 18 before slowing even further to ~1.8% in 19. Forecasted Fleet Growth by Size Range VLCC Suezmax Aframax LR2 Panamax MR % 3.1% 3.9% 2.% 3.3% 2.1% % 1.5%.6% 1.6%.7% 3.2% 5 Source: Clarksons, internal estimates Source: Clarksons, internal estimates Secondhand tanker values up across the board

6 Change in Demand (mb/d) Economy and Oil Demand Percent Economy Outlook According to the UN, global economic growth in 17 was the strongest since 11. The increased growth rate was largely due to firmer growth in several developed countries, but the end of recessions in Argentina, Brazil, Nigeria and Russia also contributed to higher growth in 17. Economic forecasts for 19 have been released by the UN and OECD (not yet by the IMF or World Bank). Forecasts suggest global growth to remain steady through USA Europe Japan Growth is forecast to remain steady at 2.1% in 18-19, a significant improvement over the 1.5% growth seen in 16. Economic activity in Europe remains robust, with GDP growth forecast to reach 2.1% in 18. Growth was unexpectedly high in 17, but is expected to slow in as fiscal stimulus eases World GDP Growth Average of IMF, OECD, UN, and World Bank China Growth accelerated in 17 in response to stimulus, but growth is expected to gradually moderate in 18 and 19. Oil Demand Outlook Forecasts of global oil demand growth for 18 are largely unchanged from last month. Brent crude oil prices increased to $67 per barrel in December 17, the highest since late 14. The US EIA continues to expect global oil supply growth to slightly outpace demand growth in 18, leading to a moderate increase in global oil inventories. As a result, the EIA forecasts a 18 average Brent oil price of $57 per barrel Similarly, the most recent Reuters poll of oil analyst shows an average 18 price forecast of ~$6 per barrel, increasing slightly to ~$61 in Global Oil Demand Growth Average of IEA, EIA, and OPEC 6 Oil price forecasts for remain flat, despite steady economic growth

7 $ per Barrel Oil Price Hits $7 / bbl Million Barrels On January 11 th 18, Brent crude oil reached $7 / bbl for the first time since December 14. This marks a 55% increase in price over the past six months, and is proof that OPEC s policy of tightening the oil market by cutting supply is starting to bear fruit. But is OPEC in danger of over-tightening? First, let s consider what OPEC s end game is. When OPEC first implemented cuts in Jan 17 it was with the stated aim of reducing OECD oil inventories back to 5-year average levels. Looking at our Chart of the month, we can see that inventories at the start of 17 were approximately 27 million barrels above the 5-year average, and this surplus was evenly weighted between crude and products. Fast-forward to Oct 17 the last month for which the IEA has published data and the surplus had fallen to million barrels, most of which was crude. Clearly, OPEC s plan is working OECD Oil Inventories vs. 5-year Average Crude Products Source: IEA At its last full meeting in Nov 17, OPEC voted to extend supply cuts to the end of 18 in order to rebalance the oil market. But there is a real chance that this balance will come much sooner, in which case we may see OPEC increasing oil supply before the end of the year Brent Crude Price 55% increase since June 17 Source: Reuters Eikon Assuming OPEC maintains its discipline, the fate of the oil markets lie in two variables; global oil demand, and US oil production. On the one hand, it appears as though global oil demand may be much stronger than is being forecast by the global forecasting agencies, which could help eliminate the product overhang fairly quickly. On the other hand, US oil production is accelerating at a faster rate than expected, which could maintain the crude surplus for longer. Trying to predict how these variables will play out is no easy task; however, our best guess at the moment is that OPEC will gradually start returning supply to the market in 2H-18, which will help kick-start a tanker market recovery towards the latter part of the year. 7 Oil price at a 3-year high is it time for OPEC to open the taps?

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