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Monday, September 24, 2018

Athens Tanker Event - Oil and Tanker Markets

The development of oil consumption and the tanker market will be determined by the strength of the economy, according to the quite diverse views expressed by the speakers at the tanker market session in Athens. Oil demand will continue to increase in 2005, but not at the same pace as in 2004, when tanker demand was also supported by stock building which is unlikely to continue with current high oil prices. The tanker fleet is estimated to increase at a faster pace than oil demand. 

Supply is to a great extent set for the next three years and a fleet growth of some 7% per year may be expected. Demand will be capped by production and refining capacity. 

John Kartsonas, Vice President of Citigroup Smith Barney, said that tanker demand cannot grow faster than 3%-4% per year until the end of 2007. This also takes into account non-OPEC oil-production expectations. Chinese refining capacity limits crude imports. Chinese refineries operated at an estimated 98% utilisation in 2004, up from 89% in 2003. The Citigroup estimates expansion projects for 2005 of some 0.2 mbd or 3.4%, and another 0.2 mbd in 2006, with the risk being on the downside. Crude import growth to China will be limited by refining capacity this year. The Citigroup estimates incremental demand growth of about one million dwt, which equals about 4-5 VLCCs, down from 2.8 million dwt or 10 VLCCs in 2004. Strategic Petroleum Reserves (SPR) are not significant in terms of imports as they are estimated to be less than 0.04 mbd until 2008.  

Although the industry has switched its focus to the demand side, a much more dangerous and unpredictable factor - global constraints on oil production and refining capacity - should put a cap on tanker demand thus leading to a best case tanker demand growth of no more than 3-4% during the same period. The tanker market is volume-based and as a result is most affected when constraints arise in production capacity, especially from OPEC, and in the refining ability of major consumers such as the U.S. and China 

Dr Martin Stopford of Clarksons did not find the fundamentals for the next three years encouraging with reduced demand and surging deliveries. However, there are wild cards which could influence the situation, such as Russia, China and Iraq.

Lousia Follis, Director at SSY, speaking on the product tanker market, agreed that the increase in oil demand would be less and that the fleet increase was the strongest downside. However, the tight refinery capacity, different product mix consumption in different areas, and also new and long haul trading patterns would add business to the product tanker sector. 

Odd Hassel, Managing Director Cambridge Energy Research Associates (CERA), said that 2004 saw the highest economic growth in 30 years, leading to the highest oil demand growth of 2.5 mbd in the same period. The build-up of inventories led to an increased call on OPEC oil of 3.3 mbd in 2004. CERA expects some 2 mbd increase in oil demand in 2005. 

Magnus Fyhr, Managing Director of Jefferies, was more optimistic for 2005 and expected strong global economic growth with global oil demand growth of 2%. He also pointed to stricter regulation of single hull tankers and increased competition for shipyard capacity. The investors concerns centred on the orderbook. He concluded that the Risk/Reward remains attractive in the tanker market.  

Emmanuel Papalexis, Chairman and Managing Director Mare International, said that there would be increased opportunities for tankers from Caspian projects. The 1,760 km new Bakum-Tbilisi-Ceyhan pipeline would open this year. A new terminal has been prepared to serve this pipeline close to the existing terminal which, since 1977, serves the pipeline which runs from Kirkuk (Iraq). The new terminal is scheduled to commence operations with a capacity of 200,000 barrels per day. This quantity will gradually increase to 1 mbd. Other pipeline projects could also materialise in the coming years.  

Today, Caspian oil reserves are estimated to be about 160-180 billion barrels. Along with its large quantities of natural gas, it is considered to be the largest oil reserve area after the Persian Gulf and Russia.

Contact: Erik Ranheim