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Saturday, January 20, 2018

TANKERS AT A CROSSROAD

There are strong and wide-reaching forces at play in the tanker industry at the moment. Some work short term others long term and they have completely different sources.

The increase in the OPEC quota was expected and OPEC countries have already started to raise oil production resulting in reduced oil prices, increased oil shipments and higher freight rates. Oil prices above $25 per barrel would probably contribute to reduced consumption. Fearnleys have calculated a 3.5% tonne mile increase on the basis of one mbd increase in OPEC oil production, of which 30% is taken from Venezuela and Mexico and the rest from the Middle East. The Fearnleys supply-demand curve suggests that an increase of 7-8% in VLCC tonne-mile demand means some $12,500 extra per day for a VLCC. Looking at liftings from the Persian Gulf on page four, we can see that those for January to March have been 23% above the monthly average for the last three years. West African liftings on the other hand declined in March, and the average for the first three months of the year was more than 10% below the monthly average for the last three years. Looking at the rates on page four, we see that the average rates for an old VLCC have been above $20,000 per day, which does not encourage scrapping. The TC equivalent results for new VLCCs have been more than $10,000 higher per day, mainly due to high bunker prices. It is really the Aframaxes that have benefited most from the stronger market. These also carry most of the oil to Europe and to the US with Suezmaxes as a good number two.

The consolidation and pooling taking part in the industry have contributed to a stronger market. However size probably means less in the oil tanker market than in, for example, the container and chemical tanker markets, where logistical solution can better be created on the basis of size and high technology. A strong market may also mean that, for example, oil companies (in particular Middle East) may build more tankers.

What everybody is looking at in the market is, of course, the effect of the proposal from the European Commission to phase out single hull tankers. The phase-out requirements are very dramatic both for pre-MARPOL ships that have to be phased out by the age of 23 and latest mid-2005, and the MARPOL tankers above 20,000 dwt that have to be phased out at the maximum age of 28 years or latest 1 January 2010. Taking into consideration that orderbooks are virtually full until 2002 with container ships and dry bulk carriers that have been contracted in record numbers, it is hard to see how the fleet can be replaced at the proposed pace. It will be tough for those having early 90s-built tankers to have to scrap them at the age of 15-20 years.

The most long-term effect of the unfortunate ERIKA accident is still perhaps the proposed changes for openness. Regarding these requirements, together with the change in some major oil company vetting requirements, there may be positive far-reaching consequences for the industry. Oil companies have probably seen that their vetting does not give them all the answers but it does give them a great deal of responsibility. They may start to use the Class records more, in particular the survey files required to be on-board in accordance with MARPOL 13G. Oil companies will presumably not accept that records are not in conformity with the actual condition of the tanker. Oil companies’ demands on the Class will be a support as well as a control of the Class, which will have to adapt to a different maritime environment. This will mean a more even playing field in the market and better conditions for the best owners.  For further information: mailto:erik.ranheim@intertanko.com