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Tuesday, October 16, 2018

High deliveries will require a strong increase in demand


Newbuilding deliveries are increasing in an uncertain market.  The tanker orderbook is almost 120 m dwt and the non-double hull fleet above 10,000 dwt is some 73 m dwt. This means that the fleet will be increasing rather strongly over the next 2-3 years.


The supply  situation is still not a clear cut.  The remainder of the single-hull fleet is not as productive as the double-hull fleet, which means that the tonnage balance is actually more favourable than is indicated by the actual figures for tonnage to be delivered and phased out.  Most of the single-hull tankers will probably disappear by end 2010, but some will continue to trade until the age of 25, as is possible according to MARPOL as long as both port and flag states permit it.  Several major flag states are allowing this, but not many port states.  Very few single hull ships are now trading to the U.S. and Europe.


We have constructed some scenarios with

  • zero, 2.5% and 4% demand increases
  • assumed balanced market end 2006
  • orderbook end February and no additional ordering
  • All single-hull tankers to be removed by 2010
  • Double-sided and double bottomed tankers to continue to trade until the age of 25 years old. 


The graph shows that with zero growth a large surplus of tonnage is building up that will last for many years.  With 2.5% growth the surplus will last beyond 2015 despite an ordering stop. With 4% growth, more orders are needed for 2013 deliveries to balance the market.


The weakness with this scenario is that it does not take into account that the balance for the suezmaxes and VLCCs is relatively better, whereas there is relatively greater oversupply in the aframax and the 40,000-55,000 dwt segments.


The actual growth rate over the next year appears to be very uncertain. OECD oil demand is on the decline and the tanker market is dependant on Asian growth, which is also uncertain at the moment.  Declining European domestic oil production and possible stagnating Russian Baltic exports may mean more long-haul oil imports to NW Europe, but an expansion of the pipeline capacity to Primorsk may change this situation. We are also seeing that China is willing to go a long way to secure sweet crude for its refineries.


The Russian pipeline under construction eastward will be negative for the tanker market, but this could partly replace train transportation to China.


It will take time to see the effect of the record high oil price, and whether it will stay as such a high level is uncertain.  Today traders and a low dollar appear to support the high oil price more than actual market fundamentals.


Adding up the various supply and demand factors in the market seems more complex than ever, and it may be that we are now at a turning point in the market.


For further information:

Contact: Erik Ranheim