With the tanker orderbook now at only 17% of the fleet, and Aframaxes and products tankers at only 10%, the “Sword of Damocles" which has concerned tanker owners recently, is looking a bit more secure. (In this Greek story, King Damocles hung a sword over his throne by a single horse hair, then made a courtier sit under it, to convince him that being king is not as secure as it looks).
Orderbook
The tanker orderbook was last at 17% of the fleet in January 2000, at the beginning of the tanker boom. So, on this measure, the market is back in more comfortable territory. In the 1990s, when earnings were similar to this year, the orderbook was 8%-15% of the fleet and following the mass exodus of single hull tankers the fleet is pretty young. This return to normality has to be good news, provided demand performs. The problem is that a dual-pronged demand structure is eroding the horse’s hair.
Dismal Developed Demand?
It’s the developed OECD countries that are the worry. Ten years ago they used 2/3 of world oil, but recently high oil prices, sluggish economic growth and environmental pressures have taken their toll. Between 2003 and 2007 demand was steady at 49m bpd, but since 2008 it has slipped to 46m bpd. For tankers this 3m bpd decline in demand was bad news.
Frisky Non-OECD
Meanwhile, non-OECD consumers were blasting away, pushing consumption up from 29m bpd in 2002 to 44m bpd in 2011 (see graph). On average, demand grew by about 0.4m bpd/pa, and faster recently. As a result, the non-OECD countries now match the OECD countries in demand, and in 2012 world oil demand should split 50:50.
Living With a Two Speed World
This brisk growth in the non-OECD countries, offset by retrenchment in the OECD has had two results. First, it has diluted the growth rate of oil demand and hence oil imports. Secondly, it has reoriented the trade matrix from the OECD to the non-OECD countries. As a result, in 2011 oil demand grew by only 0.8m bpd, creating demand for about 6m dwt of extra tankers – disappointing, given the 80m dwt of tankers on the orderbook. But this is just another example of an ongoing problem for shipping. Although part of the world is growing very positively, the heavyweight advanced economies are in a less expansionist phase in their development cycle, leading to a "two speed" structure.
The Next Phase
So there you have it. The tanker market is now much better placed, from a supply point of view, to respond to a recovery in demand. But the recovery struggles, as usual, with the appalling uncertainty about what will happen in the OECD countries, and the risk that they will continue to undermine the expansion of demand from the non-OECD. So, even with quite a small orderbook, some can’t help feeling the Sword is still hanging by a single horse’s hair.