Tanker Shipping

Tanker Shipping

Overview

Looking for a seasonal pick up while suffering unsustainable rates. Demand: According to figures from the International Energy Agency, global oil demand peaked in 2007 and is forecast to have bottomed out in the second quarter of 2009.

Looking for a seasonal pick up while suffering unsustainable rates


Source: Energy Information Administration

Source: Clarksons Research Services Ltd

Demand:
According to figures from the International Energy Agency, global oil demand peaked in 2007 and is forecast to have bottomed out in the second quarter of 2009. The forecast for full year 2009 is a drop in demand of 2.2%. The regional differences are clear, with OECD countries down by 4.7% and non-OECD countries firming demand by 1.0%

Seasonal pick up in oil demand is likely. Nonetheless, stocks remain a dampener on import growth, with both land and floating storage still high. US crude stocks were 16% higher y-o-y by mid September, at 336 million barrels. Product stock in Singapore surged in August up 11% hitting a record high of 48.2 million barrels.

The failure of the US summer driving season to boost oil demand significantly suggests there is little incentive for refiners to increase throughput as gasoline stocks remain at historically high levels.

High inventories of both crude and products continue to represent a downside risk to demand. Continued high oil price discourages consumption and thus slows down the speed of recovery for the global economy. Several newbuild VLCC’s have been used for storage of products in August. These vessels have to be newbuildings and charterers have been prepared to pay because once a VLCC has carried crude oil, the tanks will never be clean enough to carry products.

Products:
It is difficult to precisely determine trans-Atlantic MR rate with levels hovering around WS 85-WS 95 (USD 4-6,000 per day). Nonetheless, tonnage is building up in a trading environment of extremely low rates and weak activity.

Crude:
The misery continues for VLCC owners trading out of the Arabian Gulf, and now even the Atlantic market appears to have deflated, with owners willing to accept lower levels. But a recent attempt by owners to push for higher rates by idling tonnage which were offered cargoes at earnings below OPEX-levels briefly proved successful, as demand from China has earned fixtures at USD 20,000 per day.

The demand for tonnage to be used for oil contango floating storage has tied up around 9% of total double-hulled VLCC fleet as well as many smaller tankers. This has held up decent T/C rates despite a poor spot market. Contango defines the condition in which distant delivery prices for futures exceed spot prices, opposite of backwardation.

Supply:
Supply growth is estimated to be as high as 6-8% in 2009, depending on the amount of tonnage being scrapped and phased-out. The product tanker fleet has grown the most with net tonnage increased of 10 million DWT. By early October, 444 newbuildings had been delivered in 2009, equal to 38 million DWT according to CRSL. No less that 20 million DWT more are scheduled for delivery in the rest of 2009, excluding delays. Slippage to an insignificant level is currently visible.

So far this year 5 million DWT has been demolished. This is on par with the annual scrapping of 2005-2008. But the tonnage scrapped nowadays is much younger. Average scrapping age in recent years has been around 30, but in 2009 the average age is just 25.7. This may be an indication of increased scrapping in the tanker sector.

The sheer volume of newbuild tonnage capacity in the coming years forecast depressed rates despite any pickup in demand, with continued supply growth of 7-10% in 2010-2011.

As seen in the graph below, the growth in supply in 2010 can be offset if phase out of non-double hulled tonnage begins to matter at largest possible scale. But with only 60 million DWT of tonnage to be phased out over the next 5 years it is not going the rescue the trading environment in any way. The VLCC segment has 107 tankers (29.3 million DWT) which is going to be phased out. Seventy-three new VLCCs (22.5 million DWT) are due for delivery in 2010, indicating a potential for limited supply growth in this segment. Because of the age profile of the tanker fleet, “normal” scrapping is not expected to matter much. Only 38 million DWT is aged 20 years or above.

 

 Source: BIMCO

The supply outlook for 2009-2013 is estimated under the assumption that the scheduled deliveries fall short by 10% owed to vessels not being built, due to cancellations, finance issues, failing yard establishment e.g., and 25% of scheduled deliveries to be delayed or postponed. Scrapping of all vessels aged 30 or above before the end of 2013 is assumed.

Existing orders for tankers are primarily going to be built in Korea which accounts for 50% of the orderbook. This compares to 31% in China and 15% in Japan. As is the case in the other segments, the odds are that these ships are going to be built taking the economic and employment importance of the shipyard industry in the builder countries into account.

Outlook:
Oil demand forecast for 2010 is a growth of 1.5%. The regional differences are intact with OECD up by 0.1% and non-OECD increasing demand by 3.1%.

Freight rates are forecast by MSI to rise from current levels over the next 6 months. VLCC and Suezmax are forecast to see rates around USD 20,000 per day, with Aframax and product tankers firming around USD 10,000 per day.

Going into 4th quarter 2009 and 1st quarter 2010, we should have seasonal demand upturns complimented by growing economic activity.

The fundamental tanker market balance between demand and supply is expected to be in favour of charterers, both on short and medium term. Expected net supply growth of 6-8% in 2009 and 7-10% in 2010-11 is forecast to outstrip demand growth and put even more pressure on rates. However, the jury is still out when it comes to forecasting tanker supply growth in 2010.

Current news:
The Chinese Government’s Exim Bank provides a USD 389 million tanker loan to OSG to finance the building of three VLCC’s and two Aframax tankers. Tankers are reportedly to be built at newly established Chinese shipyard. The deal has major implications for the global orderbook of newbuildings, worth USD 500 billion. If Exim Bank is starting to finance foreign shipowners – and not just Chinese – in an attempt to save the domestic shipyard industry, it could be a hint that a larger proportion of the orderbook will indeed be delivered.

 

Source: MSI

in Copenhagen, DK

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