Drop in crude tanker demand

DEMAND for crude tanker shipping is expected to contract by 13% this year as the Organisation of Petroleum Exporting Countries (Opec) cuts oil production.

According to the latest CIMB Research sector update report, the drop in crude tanker demand would be further compounded by average ship supply that could grow by 7% this year.

It said this would reflect an excess supply of 47.8 million dead weight tonnes (dwt) or 160 very large crude carriers (VLCC).

One of MISC’s very large crude carrier, Bunga Kasturi Empat.

The Baltic Dirty Tanker index (BDTI) could fall as much as 51% year-on-year (y-o-y) to just 750 points or lower.

The BDTI is the average rate on dirty tanker routes. Large tankers generally carry “dirty” (black oil or crude oil) cargo as opposed to clean tankers that ship refined products such as petroleum, diesel fuel, jet fuel or chemicals.

The most recent cut in Opec production quota by 2.2 million barrels per day came into effect on Jan 1 but most likely had not been implemented in full, suggesting that tanker rates would see more pressure ahead, the report said.

“We conclude that Opec production cuts alone are enough to force VLCC and suezmax tankers demand for this year to fall as much as 13% y-o-y, while aframax tanker demand could fall by 9% y-o-y,” it said.

Over the past few months, Opec has responded to the sharp drop in oil prices by targeting large output cuts, which will be reflected more clearly in months ahead.

On Sept 10, Opec announced 500,000 barrels per day (bpd) cut in output, followed by a 1.5 million bpd cut on Nov 1, and the latest 2.2 million bpd cut effective Jan 1.

The report said the impact on the crude tanker shipping markets would be significant because the Opec cuts were borne primarily by Middle East and West African producers, which typically ship their cargoes on long-haul journey to markets in the Far East, North America and Europe.

“The negative tonne-mile impact on shipping demand will therefore be larger than if the output cut had been borne by producers which are proximate to the main consuming nations, such as Latin/South American or North Sea producers,” it said.

For instance, it takes 82 days to ship crude oil from the Arabian Gulf to the US Gulf, 75 days to Rotterdam in Europe, and 45 days to Chiba in Japan.

West African voyages take 60 days to the Far East and 42 days to US Gulf. In contrast, voyages from the North Sea to Rotterdam only take eight days, while Venezuelan oil takes 15 days to arrive at Texas City in the United States.

Compounding the lower oil demand, the tanker fleet was anticipated to grow at almost 12% this year, the report said.

This is due to the increase in newbuilding deliveries only to be offset by a modest amount of scrapping.

“More than 70% of the crude tanker orderbook is with South Korean and Japanese yards, where the prospects of shipyard failure or delivery delays are minimal and only less than 30% of tankers were ordered from Chinese yards.

“We do not expect any conversion removals (tankers to bulk carriers) this year because of the collapse in dry bulk rates, a key reason why our current fleet growth forecast for this year is almost three percentage points higher than the prior expectation.

“We have assumed that 15% of single-hull ships will be scrapped this year, followed by another 75% in 2010 because of International Convention for the Prevention of Pollution from Ships (Marpol) mandatory phase-out rules.

“The scrapping will offset most of the 2010 newbuilding deliveries, resulting in only 1.4% net fleet growth and setting the stage for a rebound in crude tanker rates,” it said.

However, according to the report, MISC Bhd’s tanker business was expected to remain profitable under the tough conditions.

“This is due to its 50% term contract protection and low capital costs. The company’s earnings are also on the defensive mode due to stable liquefied natural gas as well as growing offshore engineering businesses,” said the report.

MISC is the biggest tanker owner and operator in the country with 11 VLCCs and 28 aframax vessels.

Source: Star Online