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| Tuesday, 25 October 2011 00:00 |
 Figuring out the tanker spot market is a frustrating business. Although “fundamentals” analysis generally prevails in the end, the world where tankers trade is constantly producing surprises. Today, while Capesizes enjoy earnings over $30,000/day, despite their heroic orderbook. VLCCs with their more modest orderbook, struggle to bring in $7,000/day.Oily Waters Part of the problem for the big tankers is a classic supply driven downturn, as brokers struggle with the age old problem of “too many ships”. This is fair enough, but digging a little deeper it seems that the tanker problem has as much to do with demand as supply. Although the tanker orderbook is only 20% of the fleet, (half the 40% of bulkcarriers), the demand side is demonstrating a worrying lack of cargo growth. A quick review of the development of crude oil imports since 1990 puts this into perspective (see graph). Between 1990 and 2004 crude imports grew 53% (from 23.2m bpd to 37.1m bpd) – about 1m bpd p.a. But then the trend changed and over the next six years imports only edged up by 3% to reach 38.2m bpd. The Big Freeze The most plausible explanation of this sudden trend change is the fivefold increase in the price of oil since 2004. Between 1990 and 2003 oil cost $19.2/bbl (see graph). But it jumped to $40/bbl in 2004; $56/bbl in 2005 and $62/bbl in 2006. By 2008 it was nudging $100/bbl. Studies suggest that oil has relatively high price elasticity, so it is not surprising that this fivefold increase affected demand. The Credit Crisis also played a part, but it is clear from the graph that the slowdown in demand had already started before that. Supply-side Salvation Fortunately for the tanker business, the slowing demand coincided with the phase-out of single hull tankers. In January 2004 there was a fleet of 102m dwt of single hulled tankers, mostly trading fairly actively in the Pacific area (in the previous December one of these vessels had achieved one of the highest WS rates ever recorded for a VLCC). With the single hull phase-out date scheduled for 2010, during the next five years the single hulls were progressively withdrawn from the market, either through demolition, conversion to offshore or oil storage. This restructuring of supply played a significant part in shielding the tanker business from the slowdown in demand. What Next? So there you have it. The oil price is what’s wrong with tankers. There are other factors at work, for example the rundown of the North Sea production, but high oil prices are the real driver of weak import growth. OECD imports are declining and the non- OECD is growing slower than investors expected, so it’s a worrying scenario. With a 96m dwt tanker orderbook, fundamentals look a little worrying, but luckily the fundamentals dont always win ask the Capes what they think. Have a nice day. Source: Clarksons |