In Hellenic Shipping News 04/07/2016
Nikos Roussanoglou, Hellenic Shipping News Worldwide
Newbuilding orders for tankers have started to hit the water in growing numbers, leading to a rapid expansion of the global tanker fleet. In its latest mid-year report, shipbroker Gibson said that the global tanker fleet has grown by another 203 units, amounting to 21.9 million dwt, over the course of the past 12 months. In its report, Gibson noted that “this follows a period of very limited fleet growth (across all but the MR sector) following a period of reasonable demolition activity at firmer lightweight prices prior to 2015. Of course the strength of the tanker market during the low oil price regime has meant that owners have had little need to even think about scrapping as bunker prices headed south improving their margins still further”.
According to Gibson, “eco-ships no longer held any significant advantage as legislation on environmental issues continued to keep its distance resulting in demolition numbers falling to a mere 34 tankers (2.5 million dwt) over the past twelve months. Of the 366 tanker orders placed last year, 218 were contracted in the 2nd half of the year, although many were placed to circumvent the higher costs associated with the new Tier III regulations which came into force 1 st January in the US”. The London-based shipbroker “newbuilding prices themselves had been slowly falling since June 2014 but had a small resurgence over the 4th quarter 2015. However, the appetite for new orders across all the tanker sectors has evaporated this year despite renewed falls in pricing and the mounting pressure on shipbuilders to fill their forward orderbook. Finance too appears to have ended its love affair with the shipping industry, mostly driven by the disastrous state of affairs in the dry cargo market, but also the high tanker orderbook and the spate of deliveries scheduled for 2016/17”.
Gibson added that “in the 1st half of this year 14 million tonnes dwt has already been delivered compared to the 17 million in the whole of 2015. Despite the strong earnings across most tanker sectors over the past two years, second-hand values have also come under downwards pressure since the turn of this year as freight rates began to decline. Looking at the political scene, this time last year we were talking about the return of Iran to the tanker market and in particular more crude being available for shipment. Despite the lifting of sanctions in January, Iran continues to find it difficult to get significant traction into the market, but it will only be a matter of time as the difficulties associated with trading with the nation subside. Iraqi production continues to rise, however there is a feeling that this may have peaked. The low oil price has limited investment in new infrastructure which could restrict further increases in production. More recently we have seen the disruptions to crude oil production in Nigeria which has impacted heavily on Suezmax earnings (Suezmaxes also represent the largest segment of the orderbook in percentage terms compared to the existing fleet). Last December the US lifted their ban on exporting crude. However, so far the impact of this action has been minimal particularly as US shale oil production is falling as a result of low oil prices”.
Meanwhile, “the situation in Libya remains unchanged from what we were reporting this time last year and appears to be a long way from any kind of resolution. Meanwhile crude production continues apace despite moves by several producers who in April failed to find a consensus of agreement to cut production in order to stimulate higher oil prices. The IEA in its latest report states that OPEC production 32.76 million b/d, has reached its highest level since August 2008. Cheaper feedstock led to a renaissance for the less efficient refiners, in some cases changing the threat of closure into a return to profit. However, a global products glut has hampered arbitrage opportunities pressuring product tanker earnings. On the crude side, floating oil storage, mostly out of operational necessity, continues to provide support to the VLCC sector and employment for fuel oil storage is increasing. So much has happened over the past twelve months which is difficult to précis into a single page. What is clear is that the 2nd half of the year will remain challenging particularly with such a heavy delivery profile scheduled. Earnings across most sectors started the year quite strongly although crude began to slump recently, while the products sector has experienced a tough six months. Of course the health of the tanker market remains very much in the hands of the producers and the decisions that they make regarding future production, However, we still need to keep a watchful eye on the orderbook and hope that new orders remain in check”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
