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Monday, December 11, 2017

The Dynamic of the tanker market – Presentation at the Asian Panel meeting

The extremely strong market has in general not been foreseen by analysts and has been driven by unexpectedly high demand, Erik Ranheim asserted in his presentation on the tanker market to the Asian members in Tokyo on 10 November 2004. He said that there had been much focus on strong demand from China, but figures showed that a number of areas including the U.S., Europe and Asia had also increased oil imports. Middle East oil exports had increased by more than 2 mbd and VLCC spot fixtures in October were at a record high.

The International Energy Agency (IEA) figures do, however, show that oil supply was more than one million barrels per day (mbd) higher than demand in both the 2nd and 3rd quarters this year, showing that not all the oil being moved is necessarily going into increased consumption. The problem is the lack of data on stocks outside the OECD (Organisation for Economic Co-operation and Development) as well as about oil on water. In general oil market data are insufficient to provide an accurate picture about the market, since data arrive late and are often revised.

Lower oil demand growth is projected in 2005 and the fleet increase will hit a record high between now and the end of 2005. Sales for decommissioning will probably not contribute to limiting the supply of tonnage to any great extent as less than 8 m dwt is required to be phased out, including only 2 VLCCs and 3 suezmaxes. Only 12 VLCCs and 18 suezmaxes are required to be phased out by 2009, in addition to 72 aframaxes. Almost 60% of the tankers to be phased out in 2005 will be below 60,000 dwt.

Shipyard capacity today is fully utilised, which will dampen the increase in tanker supply, but there appears to be a real danger that supply will increase more than demand in the years to come if newbuilding orders proliferate on the back of the strong market. The first test of the strength in the market will be towards the end of the year when all the tankers fixed in October will return to the Persian Gulf, and in the 2nd quarter 2005 (2Q05) when the call on OPEC crude is projected to be 26.5 mbd compared to 28.7 mbd in 4Q04. The reduced call on OPEC oil should be reflected in the tanker market already in 1Q05. This is, however, barely a technical consideration and there are several other factors that will decide the freight market such as stock levels, oil price prospects and availability of tonnage in the Gulf.

Newbuilding tanker prices have increased by almost 70% in less than 2 years, but shipyards are encountering problems as they are today building and delivering ships contracted in previous years at rock bottom prices. The market is today at the top of a cycle and reduced ordering and increased shipbuilding capacity may mean that prices have reached a peak. South Korea has had an advantage in the market as the Won did not strengthen as much as the Yen after the Asian crisis. The Chinese currency follows the dollar and the yard takes whatever price is necessary to secure the order.

The presentation is on the INTERTANKO website, but since it is quite big, those who are interested may obtain a copy of the graphs from erik.ranheim@intertanko.com