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Friday, September 21, 2018

The tanker supply and demand race – has the tanker market peaked for now?

Between 1994 and 2005 the tanker fleet has increased by 22% from 267 m dwt to 327 m dwt. Total tanker trade in tonne-miles has increased by some 27% over the same period from 9,190 bn tonne-miles to an estimated 11,680 bn tonne-miles in 2005. The fleet increase over the next couple of years is quite predictable as there are few old large tankers left and we know the approximate phase-out and deliveries.

Tonne miles increased by more than 6% both in 2003 and 2004, but high oil prices and an uncertain economic outlook, combined with limited short-term surplus oil production capacity in the Middle East, may limit trade over the next couple of years. A slowdown in Venezuelan oil production as well as reduced growth in Russian oil production may, however, put pressure on the Middle East to produce up to its limits. 

Erik Andersen of RS Platou said that the downturn in timecharter equivalent earnings from USD 200,000 per day last November to the current USD 25,000 for the VLCCs is extreme. Some argue that this is merely a seasonal fluctuation. May is normally the weakest month of the year for VLCCs, due to heavy maintenance of refineries. RS Platou’s view is that it is not only seasonal, but actually is primarily structural and cyclical.  

Looking at the eight years from 1997 to 2004 there is a distinct seasonal pattern, but less pronounced than most people tend to believe. The quarterly averages for the eight year period: first USD 41,000; second USD 35,000; third USD 37,000; fourth USD 56,000. In the fourth quarter of 2004 VLCC rates reached an incredible USD 147,000, in the first quarter of 2005 USD 62,000 and so far in this quarter USD 41,000 per day. 

R.S. Platou believes the tanker market peaked in the second half of 2004 and that we are in a downward cyclical trend in 2005 and 2006. Andersen has argued that a tanker fleet growth of 6-7% from 2004 to 2005 will be difficult to absorb, resulting in a moderate weakening in freight rates. He doubts that market participants are fully aware of the drastic shift that has taken place in the tanker supply growth. From 1993 to 2003 the total tanker fleet grew by less than 1% as an annual average. The VLCC fleet was actually smaller in 2003 than in 1993, but now the annual growth rate is 6-7%. 

Contact: Erik Ranheim