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Thursday, January 18, 2018

BEYOND THE CRISIS: ROTTERDAM MARKET SESSION

In view of the direct correlation between seaborne oil trade and Middle East oil production, as well as the future economic and political uncertainties post-September 11, INTERTANKO had invited Prof Dr Michael Stürmer, Chief Correspondent of International Affairs at Die Welt, to set the scene for this year’s Open Market Session, entitled An update and analysis of the factors impacting the international oil and tanker markets. Dr Stürmer gave a brief history of the Middle East / Islamic conflicts. He also highlighted powerful strategies used in terrorism with the intention of causing maximum turmoil, and warned of the difficulties in forecasting future market prospects and its reliability during this period of uncertainty. Dr. Stürmer stressed the tense situation in several Middle Eastern countries that could potentially lead to dramatic changes in the political regimes.

Odd Hassel of Cambridge Energy Research Associates (CERA) said that Sept 11 had far-reaching implications as it had changed the mindsets of politicians and the public at large, instilling elements of fear and very little hope. He used three scenarios in his analysis of the global energy market: a) GDP starts to grow by end-2002, b) GDP growth weak through 2002 - begins to recover in 2003, but stays erratic and slow, and c) global recession: economic and trade relations decline – costs rise, mobility is restricted, bad debts and unemployment both increase. He believed that if for some reason the Middle East were to cut oil production completely and stop exporting oil, alternative sources of energy would be found. It would be extremely difficult for the Middle East to regain these markets. The current oil price, he said, is based purely on politics because of this period of uncertainty. In fact, the current level of crude oil stocks is relatively high.

A presentation on tanker market prospects was given by Erik Andersen from R.S. Platou Economic Research, who saw a direct correlation between economic growth and oil consumption growth. Platou has utilized economic growth forecasts to forecast oil consumption for the coming years. Mr. Andersen also demonstrated the close correlation between OPEC output, which has varied from 29.6 mbd in Nov 2000 to 24.9 mbd in Feb 2002, and VLCC rates. The utilization rate for tankers has declined from some 93% to 84% due to a falling demand caused by the economic setback. Mr Andersen did, however, forecast a recovery in the 2nd part of 2002. Based on the economic forecasts his basic model pointed to a 2.5 to 3.0% oil consumption growth, leading to a 3% growth in tanker tonnage demand. The best scenario for tankers would, of course, be a situation with low oil prices and high economic growth.

While Mr Andersen admitted that the oil estimates he had used were on the optimistic side, he maintained that a 2%-3% annual growth in tanker fleet demand was still possible. He foresaw flat or declining newbuilding prices for tankers, until container ordering recovered.

Click here for a copies of the full presentations.

Jacqueline Richardson, Richardson Lawrie Associates, gave a presentation about the chemical tanker market. Commodity chemicals have increased their market share from 34% in 1991 to 49% in 2001 and that of animal oils and fat has declined from 23% in 1991 to 16% in 2001. The share of specialty chemicals has declined by 4% to 15% over the same period. The freight rates in the chemical tanker market do to some extent follow the OECD growth index but with much stronger volatility. Besides economic development, the other indicative trade drivers are product consumption, geographical production shifts and legislation. Looking at the chemical tanker fleet, about half the fleet was built in 1995 or later. Product carriers have a much more balanced age profile. There are some 0.4 mil dwt of chemical tankers for delivery in 2002, and just under 0.3 mil dwt for delivery in 2003.

Mr. Jim Gretton, Global Freight Forwards Ltd, demonstrated how risk could be managed in the tanker market. For each forward time period, an operator should assess whether he wanted to be in a long position, meaning owning the ship, or in a short position, i.e. chartering the tanker out on a period contract. In a long position the owner would benefit if the rates went up, and in a short position an owner would benefit if the rates declined. The net position is the balance between the long and the short positions. Then the owner should match the forward position with the opinion he has on the future. If he is not happy he can fix it by, for example, making a Freight Forward Agreement (FFA) where a price can be fixed today for a defined future period. The position is in the end closed against an index or broker assessment over the defined future period. The advantages of an FFA are that there are no physical performance risks, it is more liquid than T/Cs, and it can be done quickly with standard terms. Also there are flexible volumes, regions and selective timings. The operator keeps control of his physical assets. He can hedge the bunker price to avoid bunker price exposure. A disadvantage is that he may not be able to get a perfect match with the desired voyage and timing.