Friday, May 22, 2009
Oil tanker market to stay in doldrums in 2009
Friday, 22 May 2009
A crude oil rally above $60 will not provide much comfort for the oil tanker market as weak global demand and a growing fleet of vessels will dog hopes of a recovery in seaborne freight rates.
The International Energy Agency (IEA), energy adviser to 28 industrialised countries, forecast this month that world oil demand this year will post the sharpest annual fall since 1981.
Pledges by the Organization of the Petroleum Exporting Countries to cut production has also taken its toll.
"With oil demand contracting this year and with a lot of the associated reduction in oil production coming from OPEC countries which support seaborne crude trade, the tanker market is getting hit from both sides," said Tim Smith, shipping analyst with consultants Maritime Strategies International (MSI).
Ship broker Lorentzen & Stemoco forecast average rates for Very Large Crude Carriers (VLCCs) -- among the biggest vessels in the world tanker fleet -- falling to $30,000 per day in 2009 from $90,000 on average last year.
Rates for the benchmark shipping route from the Middle East Gulf to Japan have hit record lows in recent weeks.
The overall Baltic Exchange dirty tanker index, a composite of various shipping routes for crude oil, also remains sluggish.
"Volumes are down and unemployed ships are plentiful," said Erik Jensen, a shipping analyst with Lorentzen & Stemoco. "Around 90 vessels are expected to enter the Middle East Gulf during the next 30 days, a clearly bearish sign."
Oil prices fell from record highs over $147 a barrel in July 2008 to a low of $32.40 in December, hit by recession.
The IEA has said the recent rise in oil prices was due to sentiment rather than evidence of higher consumption.
Growth in the number of vessels coming onstream is set to compound difficulties.
"The outlook is quite grim at the moment," said Parul Bhambri, research manager with shipping consultants Drewry. "There is really not too much incremental demand to support the tanker supply."
STORAGE OPTION
Jensen forecast 67 VLCCs were expected to be delivered in 2009 taking the total fleet of that class of carriers up to 568 vessels. That compared with 39 VLCCs delivered last year.
"The tanker market balance will suffer as a consequence, making business conditions very challenging for tanker owners," he said.
There are estimated to be in the region of 1,760 crude carriers including VLCCs above 10,000 deadweight tonnes.
"Many are looking to the prospects of cancellations as a panacea for the impending oversupply situation," ship broker Poten & Partners said in a report.
"Regardless of whether owners explicitly cancel their contracts, the overwhelming majority of the ships on order will likely find a way into the market."
The prognosis for the refined products tanker market is similarly weak.
While transatlantic freight rates from Europe have been steady in recent weeks, helped by arbitrage opportunities for gasoline, many analysts expect the downturn in appetite for products including middle distillates to stay soft.
The sector also faces an oversupply of vessels.
"There can probably be short-term spikes, but overall the picture for 2009 is quite grim for the products segment," said Drewry's Bhambri.
Weaker freight rates have also meant oil companies have resorted to leasing ships to store both crude oil and products.
An oil market structure known as contango -- when oil for prompt delivery is cheaper than oil for later delivery -- has made it profitable to buy oil for storage, which has helped take some vessels out of circulation.
Estimates have ranged from 100 million to 130 million barrels of crude oil stored at sea in 50 to 53 vessels. At least 30 million barrels of petroleum products are estimated to be stored at sea with at least 20 vessels being deployed in Europe alone.
But many question whether the current price structure will last, leaving vessels to once again become available.
"That will then free up ships engaged in storage activity and that will further add to the tonnage supply," said Mark Jenkins, shipping analyst with broker Simpson Spence & Young.
Fleet growth is set to also dampen hopes for next year.
"Our forecast in 2010 is continued deterioration because of the supply side overhang, despite an upturn in demand and despite high levels of scrapping," said MSI's Smith.
Source: Reuters
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