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Thursday, November 15, 2018

Why the high rates?

According to Finn Engelsen Jr at Lorentzen & Stemoco, almost all markets are booming, whereas according to conventional thinking they should not be. The oil tanker market, in particular, is showing massive strength, contrary to the predictions of some that VLCCs were in for a dive this spring.


The link to the skyrocketing oil price is, according to Finn Engelsen, quite apparent. But the strong tanker market throughout the first quarter has basically come about as a result of the massive bulker conversion exodus of last year. The little armada of tankers which is en route to the U.S. right now should at least help fill U.S. crude stocks in mid-summer, which incidentally might deepen the already well-established contango in the Atlantic basin market. This might keep the tanker market going for another round, but will all that additional crude on the water tame the runaway oil price?


Lorentzen & Stemoco, in common with most other analysts with a keen interest in the oil market, has been compelled to abandon all hitherto well-proven doctrines. The market of late has made a mockery of the traditional predictions of many seasoned analysts. Does filling crude and product tankers to record levels in the real markets no longer matter? Apparently not, as the focus now has shifted to the long-term crude production capacity rather than the short-term future capacity.


In addition to the conversions mentioned by Lorentzen & Stemoco, a number of tankers are reportedly being used by Iran for floating storage, which may also have helped the market. This may partly explain why the number of single hull VLCCs available for spot cargoes in the Persian Gulf in the next 30 days is now at a record low. However, this does not explain why the product tanker market is also relatively strong despite new product tankers delivering into the market virtually every day. Obviously demand is also strong in this sector, even if, according to the figures we have available, product imports both to the U.S. and Europe are falling.





Contact: Erik Ranheim