Operator Tanker Shipping - Tanker Operator

COMMENT
Selected spot rate and TCE revenue forecast
by trade
had noted that the world
economic outlook had changed
considerably in the short term
from a year ago.
Growth is expected to slow to
4.8% this year from the 5.2%
seen in 2007. Due to the
situation in the US, which spread
to other financial markets,
McQuilling said there is now a
significant downside risk in the
growth forecast.
Global oil demand is
expected to increase by 1.6% in
2008, 2% in 2009 and 2.2% in
2010. These figures mean
600,000 barrels per day less
demand in 2010 than forecast a
year ago.
However, notwithstanding
this reduction, tanker trade
matrix considerations will boost
transport demand for crude and
dirty products this year by
between 1.2% and 4.1%
depending on the vessel sector.
For VLCCs, McQuilling
forecast a 3.3% demand growth
this year against zero growth
in 2007.
Spot (2008 WS)
TCE ($000/day)
2007 (act*) 2008 2008-12 2007 (act*) 2008 2008-2012
VLCC 265,000 AG/East 72 85 72 39.8 51.4 38.3
Suez 130,000 WAfr/USAC 116 120 107 39.1 37.7 31
Aframax 70,000 Carib/USG 168 180 163 33.6 32.7 27.6
MR 38,000 Carib/USAC 198 205 196 19.8 18.5 17.1
*Actual 2007 average rates based on 2008 levels.
Biofuels use, increases in US
refining capacity and high oil
prices in the short term, plus
global refining rationalisation in
the longer term, pointed to
demand for clean petroleum
product (CPP) shipments
growing to 4.4% this year, up
from 2.4% last year. However,
this figure is lower than the 6.6%
compound annual growth rate
seen since 1998.
The pace of new tanker
ordering has slowed from the high
seen in mid-2006, but not before
establishing huge orderbook
backlogs across the tanker sectors.
Double digit tonnage increases are
expected in 2009, the year which
sees the greatest number of
deliveries scheduled. For the
balance of the period through
2012, a developing tonnage
supply surplus should impact on
freight rates.
The various conversion
schemes seen last year
unexpectedly helped to ease the
impact of the large delivery
schedule. As a result, spot rates
Source: McQuilling Services.
were on average higher in 2007,
due partly to constrained tonnage
supply. McQuilling said that rates
this year could improve further, as
many of the vessels earmarked for
conversion projects exit the fleet.
Because of this unforeseen
conversion programme, many of
the tankers expected to be
withdrawn in 2010, have already
been, or shortly will be, removed
from the fleet. Therefore, the
'2010 effect' on the market has
been drastically diminished from
earlier estimates.
The full impact of the Hebei
Spirit spill off South Korea is
still not clear. There is the
possibility of an accelerated
phase out of single hull tankers,
as a result of this incident. Even
without legislation, the trend will
be to move away from single
hull tankers from this year
onwards.
Despite the weaker freight
rates seen last year compared
with 2006, new and secondhand
asset prices increased by 9.3%
on average across the five tanker
sectors and were showing no
signs of weakening. Internal
rates of return for tanker projects
showed a dramatic reduction
since a year ago. However, that
hasn't stopped owners from
continuing to order new vessels.
But the mechanisms for restraint
are emerging, McQuilling said.
International finance markets
are in turmoil due to the
problems being encountered by
the US economy. This has led to
a tightening of the credit supply,
which should help to stop the
more speculative acquisitions in
a market looking for money.
Crude oil prices are forecast
to be in the $85 per barrel range
this year. Bunker prices are
highly geared to the crude price
and McQuilling expected
bunkers to average $400 per
tonne this year, increasing the
pressure on timecharter
equivalent (TCE) revenues over
last year.
Given this environment,
operators are expected to
monitor vessel speeds closely
and reduce power whenever
possible in order to lower fuel
consumption and costs.
McQuilling also expected
increased focus on backhaul
cargoes and triangulated vessel
deployments by tanker operators
to improve vessel utilisation and
TCE returns.
*Tanker Market Outlook 2008-
2012, 90 pages full colour, 89
figures and 19 tables, price
$1,000. Available in hardback or
pdf format from McQuilling
Services LLC, Ocean house,
1035 Stewart Ave, Garden City,
NY 11530; Tel +1 516 227 5700;
Fax: +1 516 745 6198; E-mail:
services@mcquilling.com
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Tanker Shipping Review March 2008 page 3