• 2019 March 14

    Spot rates will not suffice

    Despite some activities in the global market of oil cargo transportation seen in the fourth quarter of 2018, the situation is still challenging. It is somewhat better for companies with long-term industrial contracts and diversified business structure allowing them not to be completely dependent on spot rates.

    In search of balance

    Throughout the first three quarters of the past year the global tanker market was in a challenging situation as we wrote earlier >>>>

    In the fourth quarter, freight rates grew, though not considerably. According to MOL, average VLCC spot rates grew from $16,000/day in September to $41,600/day in October but decreased to $24,000/day by February 2019.

    Similar situation is seen in the segment of product carriers: an upsurge of spot rates in the fourth quarter from about $5,000/day to $20,000/day with a further decrease to some $13,000/day.

    So, the revival in the last quarter of 2018 did not ensure sufficient stability for the market. It is still under the influence of negative factors seen in the previous year: oil market volatility caused by OPEC+ cuts, situation in Venezuela, sanctions on Iran and excessive tonnage.

    As for the latter, Clarksons says that tanker tonnage in 2016-17 used to exceed the demand by 1-2%. The situation is expected to improve in the nearest two years. According to the forecast, total demand for tanker tonnage will grow by 4% in 2019 while the supply will grow by 3%; in 2020 – the demand will grow by 5% with the supply expected to climb by only 1%. The analysts attribute that to introduction of restrictions on sulfur content in marine fuel which will lead to increased demand for oil transportation in the regions with oil refining and bunkering centers.

    Besides, the market is to be supported by the growing deliveries from the USA, launching of new refineries in the South-East Asia, growth of China’s oil imports.

    Moreover, the years of 2019-20 are expected to see temporary withdrawal of some tankers which are to undergo scrubber installation.

    As of January 2019, the market numbered some 5,000 tankers with deadweight from 10,000 tonnes. The number of new tankers (less than 5 y.o.) accounted for 21%. Average age of the tanker fleet is 10.5 y.o. The number of orders for new ships is almost 500, which make 10% of the total number of ships in operation and 12% of its deadweight. Thus, the excessive tonnage is still a problem.

    According to Fearneys analysts, the second half of 2019 will look better than the first one. The weakest period is forecasted to fall on April-May with the withdrawal of tankers for fitting with scrubbers to begin by autumn. In 2021-22, the market is expected to see the introduction of newbuilds, which is to result in a decrease of freight rates.

    So, despite possible recovery of the market in 2019-20 the long-term outlook is not very bright.

    Anyway, relatively stable financial situation is demonstrated by companies less dependent on spot rates due to their long-term industrial contracts, such as Teekay. Obviously, this business strategy will be viable in the future.

    In this respect, Russian fleet of seaborne tankers is in a quite advantageous situation today since Sovcomflot is focused on the development of industrial business segments. Additional support of national shipping is offered by the Ministry of Industry and Trade and the Ministry of Transport through priorities given to RF-flagged ships involved in transportation of hydrocarbons.

    Vitaly Chernov