Features: - Tanker Operator

INDUSTRY - MARKETS
Are there any
surprises left as
unpredictability rules?
VLCC operators have realised a 41% increase in earnings, compared to 2009,
according to figures compiled up to end of April this year.
In January, McQuilling Services forecast
that rates on the TD3 route
(MEG/Japan) would average $31,500
per day this year.
However, a number of factors have
combined to push that figure up to $52,000
per day thus far. Crude oil demand has grown
faster than anticipated, as IEA’s latest Oil
Market Report puts this year’s global demand
at 86.6 mill barrels per day.
While this 430,000 barrels per day increase
from previous forecasts has affected the tanker
market, other supply influences were also at
play, which influenced earnings.
OPEC compliance with mandated cutbacks
fell to 53% in March, providing more VLCC
spot business than has been seen since
October, 2008. With over 100 fixtures
concluded during March and April specifying
April loading dates in the Middle East Gulf,
charterers have delayed the seasonal downfall
in tanker demand, which is normally seen
during the second quarter of a year.
While McQuilling’s full year forecast is for
a net increase of 31 VLCCs, thus far this year
some 15 newbuilding deliveries have been
outweighed by a net loss of 16, either sold for
recycling, or conversion.
Earlier the consultancy predicted in a
reference case scenario that around 32 of the
57 single hull VLCCs would exit the market,
or 48 vessels in what McQuilling called the
strict scenario.
Given that 2010 is around one third
through, this would imply 11 vessels exiting
in the reference case scenario, or 16 vessels
leaving in the strict scenario. That the latter
was prevailing can be put down to healthy
scrap prices, as well as falling utilisation rates
for single hull VLCCs, the consultancy said.
As charterers seek to avoid potential
environmental catastrophes, the employment
rate for the remaining single hull tankers has
fallen far below that of their double hull
counterparts, leaving little incentive to extend
their trading life.
A number of other factors have also
combined this year to further reduce the
tonnage availability. McQuilling said that its
forecasting model assumed that storage would
continue in 2010, albeit not at the levels seen
last year.
Storage returns
However, VLCC storage year-to-date has
consumed around 20% more tonnage than
anticipated. Furthermore, a recent spike in
the contango on crude prices makes it likely
that additional storage will be sought in the
near term.
Bunker prices thus far this year have
averaged $469 per tonne, versus $267 per
tonne during the same period of 2009. This
has prompted owners to slow steam,
especially while in ballast.
McQuilling said that its forecast predicted
that the fleet would average a one knot
reduction in speed this year. However, the
slow down could be closer to 1.5 knots,
further eroding charterers’ prompt tonnage
lists.
Piracy off the Gulf of Aden and the Indian
Ocean has persuaded several owners to reroute
their vessels further offshore, therefore
extending voyage times. Owners have
extended routes by up to 1,000 miles from the
Somali coast, which prolongs a VLCCs round
voyage from the Middle East Gulf by several
days per round trip.
With these supply factors combined,
charterers have been left with a much slimmer
tonnage list than originally forecast, particular
during a period when export volumes have
been increasing. Thus the scales of
supply/demand have been tipped in the favour
of owners, extending an unpredicted
opportunity to maintained higher spot rates.
McQuilling pointed out that these scales
were delicately balanced. While the orderbook
is still influential and crude demands enters
seasonal lows, external supply factors will
remain the wild card by which freight rates
will react.
Fundamentals call for decreasing tanker
earnings in the near term, but adding the
effects of contango markets, high bunker
prices and piracy activity, we may see an
extended bull run on VLCC rates, the
consultancy concluded.
Piracy off the Gulf of Aden and the Indian
Ocean has persuaded several owners to
re-route their vessels further offshore,
therefore extending the voyage times.
“
”
04
Tonne/mile increase
In a seminar organised by INTERTANKO in
celebration of its 40th anniversary, Ben Holt
of Wood McKenzie agreed that tonne/miles
would increase for crude oil tankers over the
next five years, while the carriage of products
would broadly continue to grow.
Clarkson’s Martin Stopford thought that the
tanker industry itself was now in charge of
TANKEROperator June 2010