Tanker Market Prospects - Feb 13

Source: OPEC_RP130202 2/12/2013, Location: Europe

The year 2012 was a challenging year for the tanker industry. Several ship sizes – if not the market as a whole – suffered from a combination of low freight rates and high idle capacity. The year started with slightly improved freight rates in the first quarter for both dirty and clean vessels. However, by the summer season, dirty spot freight rates reached an absolute low, in which owners’ margins were often reported at zero, or even a loss, as bunker prices increased. This was partially due to new regulation limiting the sulphur content of bunker fuel, which came into force in January 2012 and raised operational cost to higher levels. By November, however, spot freight rates saw an overall improvement, on the back of winter seasonal oil demand.

The continued increase in tanker fleet capacity was another negative factor impacting the market last year. Indeed, between 2008 and 2012, tanker fleet capacity increased by 25%, leading to an imbalance in tonnage supply and demand. Fleet expansion could have been even stronger in 2012 if not for a number of delivery postponements.

Last year, dirty vessel capacity increased by 5% and clean capacity rose by 2%. Fleet expansion was mainly seen in VLCC and Suezmax, while Aframax increased to a lesser degree. Despite the fall in the number of deliveries, fleet capacity remained plentiful and any new influx would have only worsened the existing tonnage over-supply in the market. Freight rates were also affected by 2012 Worldscale flat rates, which were almost 20% higher than in the previous year.

On the whole, the oil tanker market was clearly out of balance in 2012. Sluggish global economic growth leading to weak oil demand fundamentals, as well as global pipeline expansions and the continued inflow of new tonnage sent freight rates lower.

The removal of vessels from the trading fleet provided one of the only means to alleviate the severe imbalance between tonnage supply and demand in 2012. Vessel scrapping accelerated over the course of 2012, as older vessels lost more value, providing an incentive to sending them to the scrap yards. At the same time, resale values fell to their lowest level in 10 years, with the price of a five-year-old tanker dropping by 6%.

Looking ahead, many of the factors depressing rates during the previous year will likely continue to cast their shadow over the current year’s performance. The expansion in tanker fleets is likely to be particularly strong in 1Q13, as some deferred deliveries from 2012 are expected. This could put further pressure on tanker freight rates. Fleet growth will continue in 2013, although to a lesser degree. Therefore, the imbalance between tonnage supply and demand is expected to persist.

The gains in freight rates seen in the last two months of 2012 are seen providing some support for market sentiment in 2013. While the tanker market is expected to continue to be pressured by new fleet additions, rates are not expected to drop below the levels of 2012 and could even experience a slight increase. Indeed, recent signs of a global economic recovery also offer some hope, as GDP and world trade are expected to increase to 3.2% and 4% in 2013, higher than in the previous year. Furthermore, expected additional growth in global crude demand to Asian economies, especially China and India, are projected to lead to higher oil demand in these markets and will likely translate into higher tonnage demand.

Also, tanker owners are in concrete talks on consolidation. This could be a solution to minimize cost in order to decrease losses. Overall, the above factors will impact the shipping industry this year, but it is still too early to gauge the extent of these effects.

Additionally, new energy efficiency measures mandated by the International Maritime Organization (IMO) came into force at the start of this year. These will require an energy efficiency management plan and introduce a fuel efficiency tool at the design stage of new vessels. Both measures are targeted to reduce vessel energy consumption, with milestones planned over the coming years.

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Related Categories: General  LNG Carriers  LNG Terminal  Natural Gas Storage  Oil and Gas Pipeline  Oil Storage  Railways  Tank Truck  Tankers 

Related Articles: General  LNG Carriers  LNG Terminal  Natural Gas Storage  Oil and Gas Pipeline  Oil Storage  Railways  Tank Truck  Tankers 

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