Tanker Shipping - The world of energy is undergoing fundamental changes

Tanker Shipping - The world of energy is undergoing fundamental changes


Demand: The dynamic nature of the product tanker market, where refinery locations, local market demand specifications and price arbitrage trades are constant moving objects, turn one main trade into a minor trade within a New York minute.

The dynamic nature of the product tanker market, where refinery locations, local market demand specifications and price arbitrage trades are constant moving objects, turn one main trade into a minor trade within a New York minute. The Atlantic gasoline arbitrage trade is still of relevance, but the front-haul these days is diesel going into Europe. Export-dedicated refineries in the Middle East are coming rapidly on stream nowadays, supplying the market with many oil products. Finally, large swings in the value of local currencies in Emerging Markets can make arbitrage windows open where they have not been before.

On the LR1s and LR2s going from Ras Tanura to Yokohama, some hectic activity due to sudden and strong demand for distillates lifted rates from next to nothing to USD 15,000 per day. Demand also arrived from East Africa, lifting rates on those routes equally fast. Over the course of the last month, half the gain was lost. Rates now drift southwards, just passing the USD 7,000 per day mark.

The misery will not go away in the crude oil tanker business. The pain centres primarily on the steep decline in long-haul imports into the US that has brought VLCC earnings on US-bound trades to the floor. Even though the domestic US production is foremost in driving West African imports out of the market, the effect tears across the market, as illustrated by the decline in TD1, which represent US imports from the Persian Gulf. The TD4 (Bonny Off – LOOP) mirrors the pattern of TD1. 


Crude oil tanker asset values continue to decline, with a clear tendency that elderly tonnage declines the most percentage-wise. Over the past 20 months, a 2005-built VLCC has lost half of its second-hand value, and a 2009-built VLCC has lost 40%, according to Vesselsvalue.com. Such degradation is hurtful to balance sheets.

The new supply of product tankers has taken fleet growth to 2.5% for the year so far, while demolition volumes continue at unenthusiastic levels, with just 32 oil product carriers having been taken out of active service since 1 January. BIMCO forecasts that an expected improvement in the freight market is likely to keep low demolition numbers around in coming years. The existing optimism is expecting that to happen.

Product tanker contracting has been hectic in 2013. More product tankers than those ordered during last year in its entirety (101) have already been ordered so far in 2013 (106). No less than 16 new MR orders have been signed in the past two months, all delivery in 2015 and beyond. If we focus on the larger MR tankers between 50,000-55,000 DWT, the fleet currently holds 325 tankers, with 144 of that size on order. A look at the broader fleet size between 45,000-60,000 DWT tell us that the order-book-to-fleet ratio is 18%, with 2014 scheduled to be the big delivery year, with half of it all potentially delivered.

The tough market conditions in the crude oil tanker segment are now also affecting the delivery pace of new tonnage. We have seen only nine crude oil tankers delivered in the past two months. BIMCO expects 2013 full-year deliveries to come in just shy of 20 million DWT – equal to a fleet growth of 2.9%.


27 crude oil tankers have left the fleet in 2013, while 62 newbuildings have been delivered. This has caused the overall crude oil tanker fleet to grow throughout the year, but at a still lower pace. Below the surface, huge differences appear. Whereas the Suezmax fleet has grown by 6%, the Aframax fleet has contracted by 1.8%. In between, the VLCC fleet is 3.6% larger today than it was one year ago.

The Winter market is soon upon us – the first positive implication we may see is the stocking up of heating oil in the northern hemisphere. In one of the absolute main consumers, the US, consumption of heating oil is significant in the North East, where 27% of households use heating oil. Heating oil is more generally burned by 6% of US households for Winter fuel, with 8 out of 10 of those heating oil users located in the north-eastern part of the country. Low heating oil stocks in the East Coast and Gulf Coast states, along with New York requiring heating oil with lower sulphur levels, are expected to contribute to a tighter heating oil market this Winter.

If Libya resumes its oil exports, which have been next to nothing during September, that is likely to boost demand for Aframax tankers in the Mediterranean. The cross-Med. trade to Fos from Es Sider terminal would be one trade to benefit from a resolution to the Libyan standstill. 

The outlook from the National Ocean and Atmospheric Administration (NOAA) indicates a 70% chance of an above-normal Atlantic hurricane season. This means 2013 is likely to suffer significant disruptions, just as during the extreme 2012 season, where Hurricane Sandy was the most severe.

For the LR1s and LR2s the big question is: can they repeat what they did last year? Q4-2012 was quite extraordinary – delivering a daily average earning of USD 19,000 and USD 22,000 per day respectively – levels not seen since 2008. Early October rates leave room for optimism.

BIMCO expects that T/C equivalent average earnings for the VLCC segment will build further on recent momentum in the interval of USD 10,000-20,000 per day. Suezmax crude oil carriers are seen up from poor September levels to reach USD 5,000-15,000 per day. For the Aframax segment, expectations are that earnings will stay around USD 10,000-20,000 per day.

In the product segment, BIMCO expects earnings on benchmark routes for LR1s and LR2s from AG to Japan to deliver a positive development during Q4, but short of last year’s strong performance, in the interval of USD 10,000-18,000 per day.

Handysize rates could improve on US demand from current low levels to reach USD 7,000-14,000 per day. MR average rates are expected to firm and take some dirty cargoes too. For the coming two months, BIMCO expects freight rates around USD 11,000-17,000 per day.

in Copenhagen, DK


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