High oil prices
hurt tanker industry
OIL prices that generated
record-high shipping fees for Frontline Ltd and the rest of the
tanker industry may now reduce their earnings, as demand growth
slows and a new armada is about to flood the market.
Frontline, the world’s biggest oil
shipping company, led the five-member Bloomberg Tanker Index to its
best quarter in almost four years.
Now the industry will contend with
a 15% drop in rental rates in the second half. This is a forecast
made by a Bloomberg survey of 13 analysts and brokers.
Earnings will weaken because of a
fleet expansion that the International Energy Agency said would
“massively” exceed growth in cargoes over the next two years.
The increase in vessels combined
with the slowest growth in oil demand for six years as the global
economy loses steam, driving tanker rates 65% lower by 2010 as
reflected from futures contracts.
“Industries are having a tough time
and consumption must go down. We can’t live in this protected
environment in shipping forever,” said Per Mansson, managing
director at shipbroker Nor Ocean Stockholm AB.
Only seven of 17 analysts, or 41%,
agreed that investors should buy shares of Bermuda-based Frontline.
The stock gained 25% to 322.5
kroner (US$63.51) in Oslo trading so far this year.
“We still see a very strong tanker
market for the next one or two months, but then there are concerns
down the road, over the next three to six months,” said Billy Chiu,
commercial director at BW Shipping Managers Pte in Singapore, a unit
of the world’s largest private owner of supertankers.
Record oil price is “the
fundamental” threat to vessel demand, he added.
The tanker fleet’s capacity will
increase 18% to 432 million tonnes of oil by the end of 2010,
according to London-based shipbroker Simpson, Spence & Young Ltd.
In the same period, oil demand will
expand 2.7% to 89.2 million barrels a day, said Paris-based IEA.
Frontline interim chief executive
officer Jens Martin Jensen expected less growth in capacity.
“Although 120 very large crude
carriers would join the fleet, it will be offset by 100 single-hull
ships phasing out due to new standards of environmental protection.
We will actually see a rather less dramatic fleet growth,” he said.
Profits from supertankers are
expected to drop by 15% to US$100,000 a day in the second half,
based on the median estimate from the 13 analysts and brokers.
In 2010, rates are expected to
further plunge to about US$67,000 a day, according to data from
Imarex ASA in Oslo, a freight-derivatives brokerage.
The number of ships competing for
cargoes may also swell in the next two months because Iran,
Organisation of Petroleum Exporting Countries’ (Opec) second-largest
oil producer, is freeing up supertankers that it is using to store
crude in the Persian Gulf, Chiu said.
The National Iranian Tanker Co cut
the number of idling ships to 11 from 15 in the last two weeks,
according to Bloomberg data.
The use of vessels for storage
helped tanker rates to swell more than triple since April,
delivering rental income of almost US$196,000 a day for Frontline,
Overseas Shipholding Group Inc and Euronav NV, according to prices
from London’s Baltic Exchange and a formula from Oslo-based
shipbroker RS Platou A/S.
There are 60 supertankers available
for hire in the next 30 days up from 48 a month ago, estimates
broker Barry Rogliano Salles in Paris.
Meanwhile, Opec is pumping more
than ever before, bolstering demand for ships, Bloomberg
“All the extra oil that comes out
of the ground will go to Asia,” said Andreas Vergottis, research
director at Tufton Oceanic Ltd, the world’s largest shipping hedge
Tanker firms will still be earning
more than in the last several years.
The average cost of sending
supertankers from the Persian Gulf to Japan was about US$46,000 a
day from 1998 to 2007, according to Drewry Shipping Consultants Ltd.
Rates will average a record US$107,000 a day in 2008, Bloomberg’s
The market will also be buoyed by
more demand for double-hull tankers from Asia, spurred by the
puncturing of the Hebei Spirit in December, the worst oil spill in
South Korea’s history.
Single-hull tankers will be banned
globally from 2010. As many as 43, or almost 10% of the fleet, have
been sent for conversion either into commodity carriers, oil-storage
ships or double-hulled crude transporters since the start of 2007,
according to Lloyd’s Register-Fairplay.
Demand for tankers in Asia may
weaken after China raised its fuel prices by a record 18% last
month, said Mark Jenkins, an analyst at Simpson, Spence & Young.
“We’ve moved into a completely
different ballgame as far as demand is concerned.
“There’s enough evidence coming
through to suggest we are going to see a stronger response to this
particular hike than previous ones,” said Martin Stopford, a
London-based executive director at Clarkson Plc, the world’s biggest