This week saw two of the New York listed tanker companies releasing (among others) their half year results. Together with those they gave out their outlook on the future of the oil and tanker markets. Tsakos Energy Navigation (TEN) noted that with world economies, driven by China and India with annual GDP growths in the 8.0-9.0% range compared to 1.5% in the US, on the rebound, oil consumption levels at record highs coupled with political tensions around the world, the tanker market downturn may well come to an end sooner than expected.
For the time being though, TEN said that "the vessel supply situation in the crude market continued to provide a lid to any material rate appreciation that the current world oil demand would have triggered and for another quarter the tanker industry fell victim of its prior and on occasions, uncontrollable, lust for newbuildings. For products market, weak demand in Europe and slow growth in the U.S. economy failed to strengthen rates. On a positive note however, the supply situation seems to be recalibrating towards some equilibrium with the tanker orderbook, this quarter, down to 12% of the fleet (13% in Q1 2012) compared to 27% at the end of 2009".
In a separate note, Capital Product Partners stated that the crude tanker spot market saw solid earnings in the first half of the second quarter, but softened towards the end of the quarter as we entered the seasonally weaker summer months. In the first half of the second quarter, the tighter sanctions on Iranian crude oil, increased stockpiling by the US and China from the Persian Gulf and the Atlantic, respectively, and a softening of bunker prices supported a higher rate environment with solid earnings for VLCCs and Suezmaxes. However, rates came under pressure in June due to seasonally weaker demand, a slowdown in the stock-building compared to earlier in the year and the unexpected shutdown of the Motiva refinery in the U.S. Gulf.
Slippage for the crude tanker order book as of the end of June 2012 continued to affect tonnage supply as approximately 26% of the expected crude newbuildings were not delivered on schedule. Industry analysts expect the crude tanker order book slippage and cancellations to increase going forward due to the historically weak spot market, the soft shipping finance environment and downward pressure on asset values. Demand fundamentals for crude tankers currently are solid as crude tanker deadweight demand is expected to grow by 2.1% in the full year 2012.
On the product tanker market, Capital Product Partners said that "overall, product tanker average spot earnings for the second quarter of 2012 were softer when compared to the previous quarter, as sluggish economic growth in the US, weak demand in Europe and lack of arbitrage opportunities failed to support a higher spot rate environment.
The product tanker period charter market remained active albeit with fewer fixtures when compared to the previous quarters due to the soft rates prevailing in the spot market as well as in anticipation of the seasonally weaker summer months".
On the supply side, the product tanker order book continued to experience substantial slippage during 2012, as approximately 62% of the expected MR and handy size tanker newbuildings were not delivered on schedule. Analysts expect that net fleet growth for MR and handy size product tankers for 2012 will be in the region of 3.2%, while demand for product tankers for the year is estimated to grow by 5.7%. We believe the current low product tanker order book is amongst the lowest in the shipping industry and together with the attractive demand fundamentals should positively affect spot and period charter rates going forward.
TEN also noted that "in terms of growth, management is currently exploring various opportunities in LNG, shuttle tankers and other mainstream offshore markets while keeping a close eye on developments with conventional tankers which to some degree is entwined to developments in the shipping banking sector. The placement of a state-of-the-art tri-fuel LNG newbuilding order (and an option for an additional vessel) entrenches the Company deeper into this close-knit and high barriers-to-entry market, and management believes that TEN can leverage this modest exposure to its long term advantage.
"Following our tested corporate strategy, TEN has managed to absorb the pressures of the tanker markets while navigating the Company closer to profitability," stated Mr. Nikolas P. Tsakos, President and Chief Executive Officer of TEN. "As mentioned in the past, high utilization, cost control, cash generation and a healthy balance sheet are the cornerstones of our business model. We continue to be alert of market developments and remain optimistic that the Company is well positioned to benefit when the market turns," Mr. Tsakos concluded.