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Friday, December 15, 2017

Plunging tanker freight rates

 

 

 

This week the freight rates for tankers have plunged. The above graphs show that the average for the year is better than last year, but the fall last week was steep. At the time of writing VLCC rates are lower than suezmax and aframax rates.

 

According to Clarksons, the average number of VLCC monthly spot fixtures so far this year has been lower than for 2007. And the number of fixtures in July was the lowest so far this year – though rates were still very good. According to BraemarSeascope, in July a high number of VLCCs were being forecast to arrive in the Persian Gulf in the next 30 days. But rates are to be decided by the actual arrivals, as the June numbers for forecast arrivals in the Persian Gulf in the next 30 days were very low.

 

The graph below shows that the number of arrivals has a declining trend, but the weekly fixtures, on average, have been rather steady. This is an indication of why the rates have been so high - a lower supply of tankers rather than a greater number of spot fixtures.

 

However, during the first half of 2008 Middle East oil production was some one million barrels per day higher than the average for 2007. More oil is being moved out of the Middle East Gulf - so the figures do not quite make sense. Part of the reason for the declining trend in the number of arrivals, the increased Middle East oil production and high freight rates, could be that more tankers have been tied up in the period market. 

  

 

"The overhang from August is very small and September already looks in balance. There is likely to be a recovery in September and we could have a strong fourth quarter," said a London broker.

 

We have noticed that in the OECD area oil consumption is declining, and now with the start of the Olympics, it will be interesting to see whether China maintains its high activity and oil imports. The oil price has also declined strongly, but any oil price above 100 dollars per barrel is high. The average Brent blend so far in 2008 has been some USD 114 per barrel, which is some 58% higher than the average for 2007 and almost 200% higher than the average for 2004.

 

For 2008 as a whole, Energy Intelligence expects oil demand to be 86.5 mbd, up 0.8 mbd from 2007, with OECD demand down 1.4% and non-OECD up roughly 4%. The U.S. - the oil consumer most vulnerable to high prices because of its reliance on imports, its weak dollar and its immoderate driving habits - saw oil demand tumble by more than 0.8 mbd year-on-year in the first half of 2008. Now that prices have moderated, some consumption should come back - but only some, given that conservation and consumer switching to more fuel-efficient vehicles has permanently removed some demand. U.S. oil demand accounts for 23% of world oil demand.

 

Contact: Erik Ranheim