Persistent weakness in Europe and the impact of Hurricane Sandy led to the International Energy Agency (IEA) cutting its global oil demand forecast for Q4-2012 down to 90.1 million barrels per day . As we are about to enter the post-2008 seasonally low first and second quarters of the year, all eyes are on China, which the IEA expects will deliver 3/8 of the growth for the full year 2013. However, the most significant issue for shipping may very well be the expected higher oil supply in the OECD Americas (Canada, Chile, Mexico and the US) that is foreseen to go up from 15.7 million barrels per day in 2012 to 16.4 million barrels per day in 2013. This builds on top of the strong growth from 14.6 million barrels per day in 2011.
The Atlantic back-haul for product tankers (going from the US back to Europe), was at the centre of attention, as Hurricane Sandy left the Tri-State area short of fuel oil and gasoline. A temporary waiver of the Jones Act enabled non-US flag owners to take the opportunity to transport gasoline from the US Gulf into the disaster area on their way back to Europe. Earnings for doing this went beyond US$ 30 000 per day in early November. More recently, the gasoline arbitrage appeared wide open, indicating that New York may still be short on stocks. The latter caused front haul rates (Rotterdam - New York) to go beyond US$ 10 000 per day for the first time in two months.
The supply of 179 new crude oil tankers saw the fleet growth for the year so far lifted to 4.5%. Demolition of still younger crude tanker tonnage equal to 8.3 million DWT at an average age of 23 years provides a much needed, but not fulfilling, counteraction to the new entries.
The product tanker fleet has grown by another 71 new product tankers so far this year, while 47 product tankers have been sold for demolition, making the year-to-date fleet growth a meager 1.5%, suggesting that the product tanker segment may soon see some kind of market balance.
BIMCO has looked into the demolition potential to VLCCs to understand when the market may begin to balance again. Using data from Vesselsvalue.com, we have established that 53 VLCCs have been valued at demolition price since mid-2011. The next planned survey may prove to be a good time to scrap these vessels, as the survey is costly and the value of on-going trading is low if not non-existent. We have plotted the 60 oldest VLCCs according to latest date for survey. Larger dots indicate two or three ships on the same date. Four vessels are due for survey in December 2012, whereas 17 are set for 2013.
As a special survey is generally more costly than an intermediate survey, 2013 apparently holds most optimism if this indicator proves to be any guidance into the demolition potential of VLCCs. Poor freight market condition may affect the decision by some owners, who would then opt for not going through the expensive survey as the future earning potential of a 20 year old vessel may not justify it.
In its recently released World Energy Outlook report, the IEA states that the global energy map is changing, with potentially far-reaching consequences for energy markets and trade. The map is being redrawn by the resurgence in oil and gas production in the US. Energy developments in the US are profound and their effects will be felt well beyond North America and in the energy sector.
Should the above become a reality even to some degree, it will affect shipping. Upfront, it seems likely that crude oil tankers could see business reduced concurrently with a still-growing domestic oil production in the US. On the other hand, product tankers may see increased business, as existing refinery capacity can take advantage of abundant/cheaper feedstock prices and expand production for exports.
Tanker owners have been amongst those hit hardest by the slumping freight market. Household names are now amongst the casualties, with more to come if the unsustainable low freight rates do not improve. Currently, the seasons, be it hurricanes or Winter, provide some lift to rates and BIMCO forecasts that rates will be fairly firm for the next few months.
BIMCO expects that average earnings for all the three crude oil tanker segments will stay around US$ 10 000 – 20 000 per day.
In the product segment, BIMCO expects earnings in the interval of US$ 10 000 – 20 000 per day on benchmark routes for LR1 and LR2 from AG going East fizzling out somewhat after a surprising upturn in recent months. Handysize and MR clean rates are expected to possess the potential of a Winter market, leaving freight rates around US$ 8000 – 15 000 per day.
Written by Peter Sand, BIMCO.
This is the first of a four-part summary of the BIMCO Shipping Market Overview & Outlook 2012-13. The full report can be accessed here
Read the article online at: https://www.worldcement.com/special-reports/20122012/tanker_shipping_bimco_december_forecast_801/