Exceptional factors governed the 1st half 2003 tanker market - SSY

 The SSY (Simpson, Spence & Young Ltd.) World Oil Tanker Trends volume 2 2003 (formerly known as the J.I. Jacobs report) maintains that exceptional and unusual factors supported the tanker freight markets during the first half of 2003. The massive uncertainties surrounding the Iraqi war came at the same time as surging oil demand in the Pacific market, low US stocks, high oil prices and some disruptions in OPEC oil supply.

Japan’s switch to alternative energy sources on the temporary closure of a series of nuclear power stations, and China’s massive surge in oil imports, boosted long haul VLCC rates - SSY expects the Chinese trend to be well sustained in the rest of 2003 and into 2004. In the Atlantic, the temporary loss of Venezuelan exports to the US at the same time as Iraqi exports led to great volatility in freight rates. The rise in US crude and product imports gave underlying support for tanker demand and, according to SSY, as long as the economic picture remains positive, it is expected to last for the remainder of 2003.

In its summary of tanker demand, SSY points to a rise in global oil demand of 1.45% (year-on-year) with growth concentrated in the East Asian and US markets. Slower growth is expected for the second half of 2003, but this growth in the second half is likely to be of a more fundamental nature, rather than growth driven by “abnormal” factors as in the first half year. SSY expects growth in total tanker tonne-miles in the remainder of 2003 to be largely driven by long-haul Chinese and US imports. SSY expects a net tanker fleet growth of about 11 million dwt for 2003. However, most of this net growth will be concentrated in the Aframax and Handymax sectors, both of which are expected to grow by 14%.

The graph below shows the tanker fleet development in the period end 1972 to mid 2003 by number of tankers. The reduction in the crude/product tanker fleet following the 1970s tanker ‘crisis’ and the slow rebound since the late 1980s is clearly shown. The decline of the combined carrier fleet and the build-up of the chemical tanker fleet are also evident in the whole of this period.