Monday, March 23, 2009
Tanker market facing toxic mix of oversupply and weakening demand
Monday, 23 March 2009
Signs aren't all that good for tanker shipping companies, as a weakening demand, as a result of the global recession, seems to be settling in for good. The deteriorating economic conditions are affecting the tanker market, with current freight rates across all vessel sizes significantly below the average levels seen in 2008. As the research team at Gibson described it, the tanker market is facing “a toxic mix of weakening demand for seaborne oil transportation and a huge influx of newbuildings over the next few years”.
That said, the key for industry players will be the evolution of oil demand, which in turn is related and dependent upon the timing ans speed of economic rebound. So, when will oil demand recover? According to both the International Energy Agency (IEA) and the US Energy Information Administration, demand for oil globally will start recovering by the end of this year and the beginning of 2010. But the economic outlook is so uncertain at the moment, that nobody can be sure and further revisions could be on the way.
So, what could turn things in favor of ship owners? A tonnage supply crunch could be the solution, but even the critical factor of the single hull tankers' phase out by the end of 2010, as specified by IMO legislation, is still considered something of a “wild card”. Nevertheless, trading opportunities for these vessels diminish, which could see them exiting the market, even if they can trade in certain areas of the world. As for cancellations of tanker new orders scheduled for delivery between 2010 and 2012, they are still a “grey area” according to Gibson. “Just a few months ago in one of our weekly reports we suggested that up to 25% of the existing tanker orderbook is vulnerable to cancellations, but up until now there has been very little evidence of this”.
Although this has indeed been the norm until now, recent developments in the banking sector could turn things around. A series of banks have announced their intention to restructure their shipping portfolios, while others are going through partial nationalisation. These factors could end up in more order cancellations, but for that one has to observe closely the performance of the tanker industry over the next couple of years, together with the banking sector's ability to overcome its difficulties over the same period.
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