Print article

Plumbing the depths?

Predictions of doom were coming thick and fast, but long-term prospects for the tanker market may still be good

“At the end of March it seems that the law of gravity finally has invaded the tanker market, too,” said Platou in its report on the first quarter of the year. In mid April, Clarkson Research Services said that the tanker industry was dealing with the fallout from the oil business which is: “Facing a potentially toxic cocktail of recession, political security issues and the long-term consequences of environmental concerns.”

By the middle of May, with the Baltic DTI at 473, down from 1,312 in December, an anonymous commentator on the ShipChartering blog suggested that: “The tanker market is showing signs similar to those observed during the crash of the dry bulk market a few months ago.” Rapidly falling rates could, the commentator suggested, be due to a forthcoming OPEC meeting at which it is expected that further production cuts will be implemented, in order to stimulate oil prices.

Balancing the oil market

Oil production has fallen steadily over the first three months of 2009, and is forecast to be down 3.6% from 2008, while demand is expected to be down by 3.4% – 1.6 million barrels per day – for the year as a whole, according to the IEA. ICAP Shipping predicts that both the oil market and the tanker market will continue to weaken throughout the second quarter of 2009, with a further reduction in both demand and supply. “We now expect to see a period in which global crude oil inventories are run down during the summer, helping to tighten the market, and paving the way for higher crude oil prices later in the year unless demand proves to be incredibly weak,” ICAP predicts. The oil market is expected to rise again in the third and fourth quarters, but this is unlikely to have a large effect on freight rates, as it will coincide with the delivery of a large amount of tonnage from the yards.

While the tanker fleet is estimated to have increased in capacity by 7.7% over the past year, the increase in capacity is currently less of a concern than it is in the dry market. Platou emphasises that as much as 18% of the fleet are still single-hull tankers that will have to be removed from the market by the end of 2010, relieving the pressure of overcapacity. If the market remains low, these vessels could be removed sooner rather than later. As with the dry market, no orders for newbuildings have been received in the past two months.

The storage factor

A number of tankers are being held as floating storage in locations including the US Gulf, the Caribbean and the UK, waiting for oil prices to rise. According to figures from Platou, as many as 40 tankers may have been removed from the market for storage, while ICAP reports that it can confirm that 34 vessels are anchored for storage, and there may well be others unreported. Platou says, however, that “this absence of tonnage from trading has not tipped the ship supply equation nor provided any added stimulus for rates to date”.

Moreover, “sentiment moving forward remains pessimistic as worldwide inventory levels will likely need to be whittled down first before OPEC decides to ease current cut levels”. This means that tankers may not be released from storage until late in 2009, at which point they could further depress the tanker market just as oil demand begins to recover.

Looking East

Research from both Shell and BP indicates that long-term growth in oil demand – and in energy demand in general – will come from India and China. The IEA predicts that gasoline demand, in particular, may have peaked in the US, and that energy demand, and tanker routes, may be about to undergo a major change as a result. In the long term, this could mean increased demand for tankers on the Eastern route.

back