Tanker market conditions aren’t expected to alter significantly in the coming months, thus leaving no room for respite for tanker owners, struck by rising operating costs and tonnage oversupply. According to a recent report from BIMCO, the tanker fleet is expected to grow by 7.6% in 2011, , adding continued supply pressure on the market. Fleet growth should come down to 7.0% in 2012 but has no material effect unless cargo volumes grow significantly. Four months ago it seemed as if 2012 was to surpass 2011 in terms of crude tanker deliveries. But things have turned around now and more near-term supply-side pressure than originally forecasted is now in the making for crude tankers.
In its report, the organization said that “the peak month of the Hurricane season, September, has passed with little effect on freight rates. Hurricane Irene proved to be the only one causing a commotion in the shipping industry, being an Atlantic Hurricane that did nothing to the offshore oil installations in the Gulf of Mexico.
BIMCO expects that freight rates in all crude and product tanker segments will stay at unexciting levels as demand continues to soften and supply is set to move on” it said.
Meanwhile, it mentioned that crude oil VLCC floating storage currently employs a bit more that 20 vessels on a flat development in 2011, which leaves room for improvement. But as long as the forward curve on crude oil prices remains in backwardation, as has been the case for most of 2011, the incentive to use VLCC for floating storage is low. “Moreover, the economic conditions in the large oil consuming regions in the Western hemisphere leaves oil demand growth in that part of the world negative or flat at best. That means present and near-term future oil demand is short-haul demand and not what the tanker sector needs. An example of this is the fact that US seaborne crude oil imports have been south of 5 year-average since February, with a likely seasonal slowdown in coming months.
Despite the initiatives to lower active fleet efficiency by slow-steaming and the like, BIMCO still roughly estimates the level of VLCCs that would need to be made idle is in the range of 40-50 for overall crude oil tanker freight rates to return to a sustainable level from the present doldrums. The trouble is, however, that the Winter market is getting too close now and owners are unlikely to dare missing out on potential exciting fixtures related to a Winter spike. Without the prospect of idling or laying up vessels in coming months, the adjacent downside to non-action is a continuing of the present poor earnings” concluded the analysis.
As far as the market performance of the previous week, London-based shipbroker mentioned that it was “a repeat poor performance for VLCCs in the Middle East Gulf, but this week the salt has been firmly rubbed into Owners' wounds as the Atlantic took a turn for the better, posting rates far and away higher than those available here. If the Atlantic maintains the gain, then some will go bounty hunting, and that may lead to some re-balancing in the medium term. Rates, for now, remain in the very low WS 40’s East and down to WS 32.5 for the West. Suezmaxes started slowly, but picked up some pace by the weeks end, and rates to the East pushed towards 130,000 by WS 85, though West levels remained at around WS 50 with plenty of keen players remaining for that direction. Same as, same as, for aframaxes with only slack interest keeping rates pegged at 80,000 by WS 95 for Singapore, and little early change anticipated” GIBSON said.
It went to mention that “West Africa suezmax drums started to beat in earnest, as Owners initially took heart from better news in the Mediterranean, and then wallowed in a glut of concentrated enquiry that allowed for rates to spike above 130,000 by WS 90 for all options, with WS 100 threatened for European destinations. VLCCs on those positions then enjoyed more co-load attention, and tight availability allowed the market to rise to 260,000 by WS 65 for US Gulf, with over WS 50 now called for Eastern movements. Eventually, ballasters from the soggy Middle East will dilute the scene, but for now things should hold.
The Mediterranean saw the catalyst for the general improvement, and that was the news that new Bosphoros traffic regulations were in place that would quickly lead to heavier delays. The delays didn’t actually have to happen of course for the sentiment to get carried away - and it did! Aframaxes jumped sharply to 80,000 by WS 160 cross-Mediterranean, with the rumour factory machining even higher values. Suezmaxes inflated to 135,000 by WS 100ish from the Black Sea to Europe with up to WS 95 paid for an East Mediterranean to the States run. No retreat in the short term, though perhaps consolidation, rather than further glory.
Aframaxes in the Caribbean spent most of the week looking wistfully across the pond, and some threatened to ballast accordingly. Eventually rates moved up a notch to 70,000 by WS 95 upcoast, with some more points on the cards, but a rate spike looks unlikely. VLCCs saw less action, but the better news from West Africa hardened sentiment, and rate demands moved back above USD 3 million for Singapore.
North Sea aframaxes relied upon events to the south for leverage, rather than any particular home-grown excuse. A slow catch-up game is underway, however, and rates have moved to 80,000 by WS 110 cross U.K. Continent and 100,000 by WS 85 from the Baltic with some more to come - maybe. Suezmaxes saw little attention, but sights were raised by events elsewhere, and as high as 135,000 by WS 107.5 was seen for a short-ish movement to the U.S. Atlantic Coast. 'arb' rates for VLCCs to Singapore operated below the market with USD 2.8 million theoretically on offer. Owners ideas pushed more towards USD 3.25 million, and the result was little, or nothing, being concluded” concluded GIBSON.