Tanker market performing well so far this year, but questions remain

Date:2010/6/28/ 16:56
With almost 100 new building orders having being placed so far this year for tankers, it’s more than obvious that ship owners appear to be on the positive side, regarding the sector’s future prospects. They have been buoyed by the fact that during the past 12 months, there has been a clear improvement in the profitably of crude tankers, with average earnings for the first six months of this year well above last year’s lows. As Gibson points out in its latest weekly report, “in the clean tanker market, MRs in the west have moved up from their extreme lows of 2009 and while developments in all product tanker categories in the east have been mixed, they remain above their western counterparts. Of course, the larger crude tankers have been very much supported by floating storage which, at its peak, kept 44 VLCCs out of the market. The industry has also benefited from the removal of another 7.2 million dwt in the first half of 2010, equal to the total achieved in the whole of 2009. In mid April scrap prices reached $500/lwt in the sub continent but have since fallen back to around $400/lwt, a situation not helped by Bangladesh being temporarily out of the market” said the broker.
Since the beginning of the year, shipbuilding activity has picked up significantly with 80 orders being placed for crude carriers, while just 15 orders for clean tankers. Gibson commented that “owners have taken the opportunity to place fresh orders at lower pricing levels, even allowing for recent increases in steel prices. With world oil production nearing levels last seen in 2008 and floating storage continuing to play a key role, the outlook for the larger crude carriers remains strong. However, extra time may be required for some segments of the clean sector, but with a little more luck perhaps they will avoid the dreaded penalty shoot-out” the report states.
Meanwhile, BIMCO’s recent report on the outlook of the market said that the oversupply of crude tonnage is expected to weigh heavily on rates for the foreseeable future. However, in the short term, support could come from three factors. Firstly, increasing Somali pirate activity, which has forced many operators to divert cargoes away from the East African Coast and in some cases to re-route around the Cape of Good Hope, increasing shipping times to Europe by 12 days. Secondly, although as yet, the recent oil spill in the Gulf of Mexico has not had an impact on the tanker market, if the spill was to encroach on shipping routes it would likely impede shipping to and from the US Gulf Coast. Finally, the renewed rise in the use of large crude carriers for floating storage could limit their availability, especially on routes from the Middle East Gulf.
“Freight rates for crude carriers are forecast by MSI to stay firm over the next 6 months where VLCC and Suezmax are forecast to see rates around USD 30,000-40,000 per day, with Aframax coming down from recent spike and firm around USD 15,000-20,000 per day. Product tanker rates are foreseen to see rates increase fairly well from levels below USD 10,000 per day to some USD 13,000 per day during next 6 months of 2010.
Increased oil supply and decreased consumption have radically altered the outlook for US imports. Five years ago the EIA forecast that by 2025 America would be importing 16 million barrels of oil a day, equal to 68% of its needs. Now that forecast has come down to less than 9 mb/day. Disappointingly, the total bill will still be higher because prices have gone up so much. Approximately 80% of US oil imports arrive by sea” said BIMCO.
During the previous week VLCC Charterers in the Middle East Gulf kept fresh enquiry to only modest levels, and thereby effectively spiked Owners previously burgeoning sentiment. “Once that had been achieved, a rate reduction quickly followed, and levels moved off by some 20 worldscale points to WS 90 to the East and into the high WS 50’s West for double hulls. More uncertainty came in the form of news that some previously storing Iranian tankers were re-entering the marketplace, and although the reality may not prove too dramatic in terms of the number of released units, the potential of a mass release will not help to turn the tide in the short term. Quite strong suezmax activity noted, but availability proved a more than adequate match, and rates actually fell to 130,000 by WS 100 East and low WS 70’s West on early dates, though later positions held a 10 percent premium for 'insurance' purposes” said Gibson.
Aframaxes couldn’t continue their upward thrust to any meaningful degree, gaining only very slightly to 80,000 by WS 125 to the East, and look set to stay flatline now for a while.
Suezmax Charterers continued to serve thin gruel to Owners in West Africa, and thereby ensure that any excess fat was trimmed from their bones. Rates dropped steadily through the week to end at 130,000 by WS 85 to the US Gulf with more of the same to come over the near term, or until Charterers decide to be more generous with their portions. VLCCs tried hard to maintain, but as the differential under suezmaxes shrank, economics evaporated and even the theoretical market level of 260,000 by WS 82.5 for US Gulf was hard to achieve/warrant. Cargoes to the East also thinned, but the lack of round-trip ballasters keeps levels close to WS 80 for China, and USD 4 million for West Coast India, said the broker.
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