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BIMCO podcast review of the tanker market.

By • Sep 2nd, 2011 • Category: Tankers

This podcast from Coracle gives a review of the tanker market from BIMCO.

To learn more about the tanker markets, why not take Coracle’s Tanker Chartering course?

Thank you for downloading this Tanker shipping podcast from Coracle Online and BIMCO for August 2011.

Starting with a look at demand we see that projected oil demand continues to slide, with growth entirely driven by non-OECD countries. OECD-demand is expected to contract by 0.4 million barrels per day this year and 0.1 mb/d in 2012. The 2012 forecast by IEA leaves little room for optimism as the current estimate is as low as 1.7% (1.5 mb/d). China is the main driver in this game and set to increase demand by 0.6 mb/d in 2011 and another 0.5 mb/d in 2012

The recent IEA interference was bad news for an already struggling tanker market as oil were suddenly sourced to the market from the “backyard” – and not the other side of the Earth. Crude oil equivalent to 30 fully laden VLCCs was released in a joint action to bridge the current undersupply of the market with a much needed hike in OPEC production. It goes without saying that once the eventual restocking gets under way tankers are in for a positive impact.

CRUDE OIL – Even though the total number of VLCC spot fixtures Westbound and Eastbound out of AG are fairly similar to the numbers last year, freight rates have halved on the Eastbound trades but have crumbled to a quarter of last year’s earnings on the Westbound trades. At early August the calculated average earnings for a VLCC going from AG to the US Gulf was $78 per day! The market is heavily oversupplied. The recent development prompted Frontline to announce that they would pull 2-3 VLCC’s from the market as only few signs of short term improvement on the tanker market were visible and there is “no point in transporting oil for free”. Down the same alley, fellow VLCC owner, BW Maritime has avoided fixing VLCCs at current market level as rates are “dangerously low”. The recent market development has also made the second hand market come to an almost-complete stop as only the MT Star II, a 1989 built, 300 thousand deadweight vessel being reported sold since the end of March. The 22 year-old single-skin went for as much as $ 30 million and will surely head for conversion into FPSO, which is the main business area for buyer Modec.

PRODUCTS – Clean M.R. average earnings remain horrible due to subdued demand and plenty of tonnage. Average earning for 2009-2011 are $7,500 per day, as compared to 2006-2008 earnings of $24,500 per day.

With the driving season on-going it’s relevant to watch out for motor gasoline imports into the US. Data from EIA on July imports are surprising low. BIMCO did expect the driving season impact on freight rates to be uneventful, and so it has been, the low import levels crushed sentiment before it took off hitting $15,000 per day during one single week in mid-June only to drop to touch the $10,000 mark the following week – sliding further from there.

With a weekly average of just 768,000 barrels per day in July – 32% below last year’s July imports at 1,133,000 barrels per day. You need to go back to 2002 to find a more sluggish demand picture.

Now we look at the supply side and the active crude oil tanker and product tanker fleet has grown by 3.6% and 2.5% respectively so far in 2011. 18.6 million DWT of crude tanker tonnage and 3.8 million DWT of product tanker tonnage have been launched so far in 2011.

The delivery pace of product tankers appears to be slightly higher pace than previously expected. This means that the supply growth now seems to reach 8 million DWT as compared to 7.5 million DWT – four months ago. This increased supply growth by 6% from 5.2. It is a general trend across segments that yard output is marginally higher than foreseen.

The pick-up in demolition which was about to surprise positively has come off again, getting back in line with BIMCO forecast.

BIMCO forecast the crude tanker fleet to grow by 9.1% in 2011 adding even more supply pressure to the market than today. Fleet growth should come down to 7.5% in 2012 but the result is the same. 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.

For the Outlook we note that as demolition is limited, idling or lay-up of crude oil tankers would ease the supply-side pressure to some extent. The perfect example of a successful idling of vessels to bring back earnings was seen in the container segment during the first half of 2010. But idling remains a “prisoner’s dilemma” – which is a fundamental problem in game theory that demonstrates why two parties might not cooperate even if it is in both their best interest to do so – as defecting from the equilibrium might leave the defecting party better off at the expense of the other party.

As US gasoline stocks are getting close to upper limit in the average range, despite record low imports, and the “cancelled” US Summer driving season is coming to an end, it proved to be a negative surprise to the clean product tanker market in the North Atlantic basin more than just a non-event.

As we are on the way in a sluggish third quarter, tanker owners have started to look forward to the winter market in the Northern Hemisphere by December/January where the right fixtures and being in the right place at the right time can mean a huge difference for your annual earnings – especially during such a poor 2011. A special swing factor going forward will be a potential second market intervention by the IEA. The Agency has made clear that the knock-on effect from the situation in Libya could prompt further action. So it basically depends on OPEC to increase oil supply sufficiently from which the tanker market would benefit or risk another IEA action which would ease tonnage demand further.

BIMCO expects that freight rates in all crude and product tanker segments will experience an unexciting autumn as demand continues to soften. End-user oil demand leaves little room for optimism and rates could remain in current low territory. Moreover the crude tanker segments will see strong inflow of new tonnage adding downside to the demand-supply balance.

Assessing the market price on assets, whether it’s a newbuilding (NB) or a second hand vessel, has become increasingly difficult as the number of uncertainties in the equation seems to get more and bigger. Before the World fell of the cliff in the autumn of 2008 a stable relationship was in place and markets were treating us good. Nowadays a relationship is difficult to define. As MR newbuilding contracting never dried up the slide in the prices has been steady but not dramatic. On the other hand high activity in the second hand market has pushed up prices – recently seen in the busy months of May and June this year. As the active MR fleet to orderbook now stand at 12% it’s likely that NB prices are not oing to close the USD 5 million gap. This leaves some upside for the second hand value in order to re-establish the historic price difference which is a bit tighter than today. BIMCO expects that the gap is going to narrow over the coming 12 months as the intangible sentiment supports higher asset prices, despite a weaker tanker market.

Thanks for listening