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Monday, December 11, 2017

Several negative factors hitting the tanker market

 

The sharp drop in tanker freight rates has mirrored the drop in the oil and bunker prices. However, average freight rates for 2008 are higher than the average freight rates for 2007, and the oil price has fallen back to the level in April, when it was at an all time high. It is important to keep the picture in perspective.

 

The Paris-based International Energy Agency's (IEA's) monthly oil market report had no dramatic news. But it is important to note that there was a contra cyclical stock draw in June, and a stock build-up is therefore expected in the third quarter. There are indications that this started already in July.

 

An important factor for the tanker market highlighted by the U.S. Energy Information Administration (EIA) is that OPEC oil production is expected to rise to 32.9 mbd during the third quarter of 2008, up from 32.3 mbd in the second quarter. The forecast assumes that Saudi Arabia will maintain its July 9.7 mbd production level through the third quarter, representing a 0.4 mbd rise from second quarter levels. OPEC crude oil production is projected to drop to about 32.4 mbd in the fourth quarter of 2008, and to decline to 31.6 mbd in 2009.

 

It is also important to note that. according to Reuters, Iran has no plans to sell any more of the oil it holds in floating storage off its southern coast. Industry sources estimated the world's fourth largest oil exporter had around 30m barrels stored on very large crude carriers (VLCCs) off its Middle East Gulf coast in May. This will release some 10 VLCCs.

 

The closure of the BTC (Baku-Tbilisi-Ceyhan) pipeline has removed almost a million barrels per day of light crude from the market that has to be replaced from somewhere else. Saudi Arabia is about the only country with surplus capacity, but this is probably not the light crude that is wanted by the market. It is therefore difficult to see how the market will react to this, and how soon exports through the pipeline can be resumed.

 

In the long term, the lower oil price may be positive for oil consumption growth, but there will be a time lag until long-term fuel switching and fuel saving, and part of the slow down in fuel consumption may partly be due to the increase in oil prices that started three to four years ago.

 

 

There are also concerns about lower economic growth, the latest being that Japan's economy contracted at an annualised 2.4% in real terms in the second quarter, confirming fears that the world's second largest economy could be facing a recession for the first time in six years. The Japanese government said GDP (gross domestic product) fell in the April to June period after increasing by a revised 3.2% in the first quarter. Exports, which had supported the economy, experienced their largest drop since 2001, highlighting the impact on Japan of the global slowdown. GDP declined by 0.6 per cent quarter-on-quarter, after rising 0.8 per cent in the three months to the end of March, largely as a result of a slump in domestic demand.

 

The U.S. economy is not yet technically in a recession, but it shows few signs of reviving. Unemployment is rising and other indicators underline the risk of prolonged stagnation. However, economists have predicted that the data trade deficit narrowing unexpectedly in June would lead to an upward revision of U.S. economic growth in the second quarter, from the 1.9% annualised rate, which was reported in July. 

 

Faltering employment and surging inflation are of increasing concern in Europe. The recent drop in commodity prices may, however, dampen inflationary pressure. The Eurozone economy has contracted for the first time since the launch of the Euro a decade ago, with France hit unexpectedly badly by high oil prices and deteriorating global conditions. GDP in the 15-country region fell by 0.2% in the second quarter, reported Eurostat, the European Union’s statistical office. That marked a sharp turnaround from the first three months of the year, when GDP expanded by 0.7 per cent.

 

Braemar Seascope's recent report shows that VLCC rates are falling this week despite the high number of fixtures (44 fixtures compared to an average of 27 for the last year). The highest number of fixtures in one week last year was 45.

 

Click here for the total Braemar Seascope reports and statistics.

 

Contact: Erik Ranheim