In its latest report, US-based Mcquilling Services takes a look on the tanker market’s first half  performance, compared to its estimates at the start of the year, while making its predictions for the rest of the year. As it notes, its January estimates have generally reflected market activity despite unpredictable events such as the natural disaster in Japan, the Libyan civil war, release of Strategic Petroleum Reserves and unnerving global economic situation.
“Thus far, spot freight for a combination of clean and dirty rates have performed within 6% of our forecast. Our expectations for tanker demand fundamentals are also in line with market activity with the exception of lower VLCC ton mile demand growth. However, given the precedence of the unexpected events we lowered our VLCC forecast to a more or less flat growth rate for this year. Overall, ton mile demand contracted by roughly 1% in the first half of 2011 versus the same time period one year ago. In the various tanker classes, all sizes, bar one, chalked up a slide in demand. All of these movements were within our forecasting range.
As we have noted since 2009, there is an increasing volume of tonnage moving west to east. This development is spurred by the rapid growth occurring in Asia-Pacific and its resulting appetite for raw materials. This is taking place as crude transported on the traditional benchmark TD1 contracts. The share of west to east trades has expanded from 19.5% in 2009 to 23% last year, according to our proprietary data. Through the first half of 2011 the share of trade west to east already made up 22% of the total cargoes shipped. The strong volumes recorded so far can be partially attributed to shifting supply sources, and highlights the growing importance of the west to east trade route” said Mcquilling Services.
It went to analyze the clean tanker markets, stating that they “performed somewhat below our expectation of a 4% growth in ton mile demand over the first half of the year. This performance however, is in line with McQuilling Services’ expectations that demand centers would shift from traditional sources within OECD to countries in emerging markets. The weak economic situation in the European Union and the US has pressured demand in these regions, resulting in exports from non-OECD refineries to customers in non-OECD countries rising” said the consultant.
“Turning to the physical side of the market, asset prices continued their downward trajectory in the first half of the year. Activity on the newbuilding side has decreased strongly and owners will refrain from pressuring shipyards for deliveries. Demand for vessels such as container ships and FPSOs have kept shipyard operations near capacity, helping limit the volume of deliveries and the future orderbook. As a result, second hand ship sales have been a key force in driving the market. Net trading fleet growth through July was just over 45% compared to our January estimate. Deliveries and deletions were about 40% of our forecast” it mentioned.
Recently, financial and commodity markets took a dive in reaction to the latest news regarding to US debt ceiling and American politician’s willingness to play chicken with the global economy. By the end of the first week in August, it seemed like markets could have found a toehold to prevent sliding into an abyss, but after the US saw its Standard and Poor’s credit rating cut from AAA to AA+, markets moved lower than had been anticipated. Traditional safe haven gold has seen its price climb to new highs and the outlook of the global economy as a whole continues walking a fine line.
Making its projections for the remainder of the year, Mcquilling Services says that “it is clear that markets in Western countries will face tougher times in the short term, but how heavily this impacts the developing world will be a crucial factor in determining future demand patterns. These conditions were already considered in our Tanker Market Outlook. The International Energy Agency forecasts that oil demand will rise by 1.5 million b/d to 91 million b/d in 2012. This growth will be solely based on rises in non-OECD countries. Looking forward, McQuilling Services opted to not make any significant revisions to our five year forecast as we let the dust settle from recent events. The front years of the forecast period will remain pressured from an uncertain demand outlook and an oversupplied tanker market. Eventually market forces will result in a consolidation among industry players, tightening up tonnage and helping lift rates from their trough. We still assume the global economy will recover and growth, albeit relatively low, will return to OECD countries while economic expansion will be supported by demand in other parts of the world. In the short term, we see upward potential limited and anticipate that any noticeable strength in the overall market will only be apparent in the out years. For the remainder of 2011, a revision by the National Oceanic and Atmospheric Administration for a more intense hurricane season could result in market swings. Baring that, worried eyes are likely to stay fixed towards stock market, jobs and commodity price figures in the short term” concluded Mcquilling.