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Global Eco Gloom Tank Tanker Mkt Hopes

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The crude oil tanker market's hopes for a recovery next year could run aground as global economic turmoil stifles oil demand in the United States and Europe, denting prospects for a sector already battling a supply glut and a rate rout. Strong global oil demand, driven mainly by China, has been the lone bright spot in the depressed dirty tanker market this year, although earnings for ship owners still slipped to record lows this month as supply of new ships outpaces demand growth. An economic slowdown, or worse yet a recession, could push oil consumption in the United States - the world's top oil consumer - into an irreversible decline and overshadow China's growing needs for the energy resource. "The crude tanker markets have been really bad so far in 2011, but the bad news is that it can get worse," said Peter Sand, chief shipping analyst with ship association BIMCO. "Supply is not stalling the way demand is, in particular for crude tankers." The U.S. Energy Information Administration (EIA) last week lowered its forecast for domestic oil demand from growth to decline in 2011. It also cut its forecasts for growth in global oil demand, as did the Organization of the Petroleum Exporting Countries and the International Energy Agency (IEA). For 2012, agencies were mixed with OPEC lowering global demand growth estimates, while the EIA and IEA raised theirs. The IEA, however, said its forecast could more than halve if the economy grew slower than expected next year. Supply To Outstrip Demand The global dirty tanker fleet, dedicated to transporting crude and fuel oil, is expected to grow 9 per cent this year with the delivery of 36 million deadweight tonnes of new vessels, BIMCO said. Further expansion is seen in 2012 with 29 million more deadweight tonnes, a 7 per cent increase in supply. That compares to global oil demand growth of between 1-2 per cent in 2011 and 2012 forecast by the IEA. The current oversupply problem stems from a ship ordering spree before the economic turmoil in 2008. Those tankers, which typically take three years to build, are only now entering the market. "The current supply side picture is not seeing any improvement in recent months," said shipping consultants Maritime Strategies International in a research report. "The large crude segments continue to be pounded by new deliveries and there will be little respite from this assault over the next year." A similar situation is playing out in the dry bulk freight market, which ships iron ore, coal, grains and other dry goods. More economic turmoil could lead to further casualties and possibly bankruptcies in both the tanker and dry bulk sectors. "The market is jumpy and things are about to get very unpleasant for some tanker owners," said a ship industry source. In The Red Crude oil tanker earnings on the Baltic Exchange's benchmark Middle East route tumbled to a record low this month, dipping into negative territory for 10 of the 13 trading days in August so far, plummeting as low as -$1,889 a day. In other words, ship owners briefly paid $1,889 more a day in bunker fuel and other variable voyage costs than they received from companies using their very large crude carriers (VLCCs) to ship crude oil on the TD3 route. This is the first time that average earnings have traded negative since the Baltic Exchange started collating earnings-equivalent data in 2008. "With negative returns, you are paying charterers to lift their oil - that makes no sense," said Nigel Prentis, head of research, consulting & advisory with HSBC. "Unfortunately, the market is too fragmented to see any solidarity of action. So if one owner is willing to cut and run and keep his ship at a negative return then it spoils it for everyone else." Average TD3 earnings so far this year was around $11,000 a day, down more than 65 per cent from last year's $32,000 a day average. "The sour state of the macro economic situation in the largest oil consuming areas, with the exception of China, is very worrying for the shipping industry," said BIMCO's Sand. "The recovery of tanker earnings is not likely to happen during the next 15 months, but visibility is low at the moment making forecasting extra challenging." Oslo-listed Frontline, the world's largest independent tanker operator, said this month it was pulling some of its largest crude oil carriers from the market - also known as laying up - to limit its losses. "The financial turmoil has pushed the (industry's) confidence level to a new all-time low," Frontline's Chief Executive Jens Martin Jensen told Reuters. "I don't think the market can get worse." He urged ship owners to refuse to take negative earnings and to lower the speed of their tankers, which would lower supply, for the industry to have any hope of recovery. Frontline does not expect a recovery before 2016. Nevertheless, some analysts say there is a remote possibility an economic slowdown could actually support earnings for ship owners. If global oil demand falls due to a downturn but OPEC is unable to match that with a cut in its production, then it could revive the use of tankers for storing crude. The amount of crude oil stored at sea has steadily declined to around 6 million barrels since hitting a peak of more than 100 million barrels in April 2009, after changes in the oil market structure that made floating storage less profitable. In 2009, floating storage employed the equivalent of 50 tankers, mainly VLCCs, or about 10 per cent of the VLCC fleet at the time. "If OPEC were to keep total production around current levels despite lower oil demand, the return of floating storage would clearly be helpful for tankers," said RS Platou Markets in a research note. (Reuters)