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Saturday, December 16, 2017

Uncertainty grows as the dollar falls and the oil price rises

Investors are becoming increasingly nervous as the dollar falls to a fresh low against the Euro and a 26-year low against sterling. We are witnessing failing consumer confidence, a record high oil price – also in real terms – but lacklustre freight rates. This situation indicates that it is not increased oil demand that is causing the oil price to rise, but rather political tension. Deflation and growing unemployment in Japan, together with actions to dampen inflation in India, are adding to the uncertainty prevailing in the financial markets.

 

 

  

According to the Energy Information Administration (EIA), U.S. oil imports, which have been a main driver in the tanker market, are no longer increasing, and domestic production is marginally increasing. 

 

The best news for the current tanker market appears to be the booming dry bulk market, which is prompting the conversion of tankers to dry bulkers as fast as capacity allows.

 

The latest hearsay is that a large number of aframaxes are queuing up for conversion. We have a list of 12 aframaxes being sold for conversion in 2007, but much larger numbers are being rumoured. Removals of tankers this year could easily reach 10 m dwt+, of which less than 4 mbd would be sales for demolition. There has also been talk of converting tanker contracts to dry bulk contracts.  In addition to 12 aframaxes we have a list of 8 Suezmaxes and 13 VLCCs, for conversion in 2007.

 

But the tanker market still needs a strong positive demand increase as deliveries will exceed 27 m dwt this year, 33 m dwt in 2008 and 53 m dwt in 2009.

 

Contact: Erik Ranheim