Tanker market in OPEC’s grip

The extremely strong drybulk market was the focal point at the 22 October Bulkforum meeting in Oslo. Mr. Jarle Hammer of Fearnleys outlined that, when interest rates and operating costs are taken into account, today’s dry bulk freight rates adjusted for inflation are even higher than in 1973.

The development of the world economy, stock markets and the tanker market were also discussed at the meeting.

Large movements in interest rate levels and stocks have recently been seen. The stock markets have moved from fear to modest optimism. Leading indicators point to positive developments in the major economies (except Europe) and the stock markets. However, is the 3rd quarter 2003 6% growth in the US GDP a temporary effect or a turning point? Economists’ opinions differ on this.

According to Mr. Ole R Hammer, P.F. Bassøe Shipbrokers, the accelerating world economy presents an up side for oil demand in the short term. The oil market is strong and controlled by OPEC. The market has moved from oil stocks on land to oil stocks afloat. The high oil prices should make for lower oil inventories and what is actually being seen is that stocks have flattened out at a lower level than in previous years. During the 1st half of 2003 oil demand was 1 mbd higher than expected and non-OPEC oil production was lower than expected. This resulted in a higher than expected call on OPEC crude oil.

For 2004, oil demand is forecast to grow, but so also is non-OPEC oil production, which will dampen the increase in the demand for OPEC oil. Uncertainty surrounding Iraqi and Venezuelan oil production is also likely to persist in 2004. The US is set to increase oil imports. US crude and products imports for 2003 were about 1 mbd more than for 2002. Even with the high oil prices, world oil demand growth in 2003-2004 is expected to increase by 1.5% compared to the less than 1% in 2000-2002.

Looking at the tanker market, seaborne trade is expected to grow in 2004. Oil exports out of the Persian Gulf are set for a slow increase. The question is whether Iraqi exports will come directly out of the Gulf or via the pipeline through Turkey to Ceyhan in the Mediterranean. Depending on the oil market, another OPEC cut in oil production may occur during the first half of 2004.

However, little growth is expected in VLCC capacity next year. The tanker fleet above 80,000 dwt is set for slower growth in 2004 than 2003. According to P.F. Bassøe, despite massive deliveries of double-hulled tankers, the single-hull tanker fleet will still be needed for many years. According to its calculation, by the end of 2005 33% of the tanker fleet will still be single-hulled.