Expected Tanker Fleet Growth Reaches Four-Year High

As the market awaits a potential oil price hike triggered by the ongoing geo-political tensions in the oil-rich producing nations, demand for tankers seems to be doing pretty well.

“The order-book for tankers has risen in the past two months and it is all about crude oil tankers.

Four VLCCs and six Suezmaxes made the headlines, as the order book for product tankers dropped from 26.2 million DWT to 24.4 million DWT. The new orders have lifted the level of crude oil tanker capacity for delivery in 2016 by 16% – bringing the expected fleet growth up to an uncomfortable four-year-high – the expected growth will represent 3.0% of the active fleet at that time,” BIMCO said.

The 2014 has delivered USD 22,400 per day so far an increase from average crude oil tanker freight rates of USD 15,500 per day that marked last two years.

Just a few tankers have been booked to store cargoes at sea in recent weeks partly due to expectation among tanker owners of higher rates in the final quarter of the year, Reuters writes.

As a result oil traders will have to pay a premium to lease vessels for longer periods as shipping firms remain reluctant to tie up vessels.

According to shipping sources and freight bookings cited by Reuters, three to four very large crude carriers (VLCCs), each capable of carrying 2 million barrels of oil, have been booked for short-term storage options in recent weeks with little change since September.

At the moment, the cost of storing oil on tankers is anywhere around 90 cents a barrel and the gap between the two front ICE Brent futures contracts is now only 35 cents, making any trade unlikely.

BIMCO forecast product tanker supply growth at 4.5% for 2014 as a whole.

The 2015 seems brightest for crude oil tankers, as the pressure from the supply side is low. For oil product tankers, BIMCO expects 2014 and 2015 to bring about increased supply side pressure, but also to provide improved demand side opportunities.

However, the subdued economic growth is also weighing heavily on overall oil demand. International Energy Agency (IEA) expects growth of 1% in 2014 and just 1.3% in 2015. A weaker outlook for Europe and China underpins the downward revision published 11 September.

The forecast of global oil demand for 2014 has been revised 0.2 mb/d lower since last month’s IEA report, to 92.4 mb/d, on reduced expectations of economic growth and the weak recent trend. Annual demand growth is now projected at 0.7 mb/d in 2014, rising tentatively to 1.1 mb/d in 2015, as the macroeconomic backdrop improves, based on IEA data.

In the short term,  the seasonally strong oil demand is also expected  to support tanker freight rates over the course of the winter.

For October/November, BIMCO expects earnings for the three crude oil tanker segments to react positively to the slow supply growth.

VLCCs are expected to firm around USD 18,500-37,500 per day, Suezmax crude oil tankers at around USD 20,000-40,000 per day and Aframaxes could be reaching USD 35,000 per day at the high end and USD 15,000 per day at the low end of our interval in a volatile market.

In the product tanker segment, BIMCO expects earnings on the benchmark routes from AG to Japan for LR1s to remain around USD 14,000-22,000 per day. LR2 ships are likewise enjoying a stronger market, with earning set to stay around USD 18,000-28,000 per day.

Handysize rates are seen holding more upside and thus improve steadily in the USD 7,500-15,000 per day, with MR average rates already enjoying a lift and thus forecast to be in the interval of USD 10,000-16,000 per day.