Oil tanker earnings likely to revive next year

Although a sharp decline in the VLCC (very large crude carriers) charter earnings on major global routes continues to be one of the biggest worries for tanker owners worldwide, the next year could see a revival in VLCC earnings, a senior official has said.
 
“Generally, depressed tanker earnings shouldn't be a matter of too much concern for tanker owners. This is primarily because of two positive factors that we believe are expected to lift the tanker market next year. First, the IEA has forecast strong growth in the crude oil consumption globally next year that would lead to greater demand of VLCCs and thus improvement in the tanker earnings. Secondly, the increase in global oil consumption would also lead to bigger demand of vessels for floating storage, that would in turn lead to reduction in tanker oversupply in the market,” Per Wistoft, CEO, Gulf Navigation Holding, Dubai, one of the largest shipping companies in the region, told Emirates 24|7.

The GCC is the world's largest crude oil supplying region and, as per estimates, the region accounts for almost half of the world's proven oil reserves and a quarter of crude oil exports in the world.

However, latest studies have said VLCC earnings on the MidEast-Japan route have dropped to fresh year low level.

According to a recent report by London-based EA Gibson Shipbrokers, the tonnage oversupply is putting massive pressure on the VLCC earnings, battering them to levels close to operating costs. Monthly average TCE (Time Charter Equivalent) earnings on the benchmark VLCC route (Middle East – Japan route) have dropped from this year’s high of $78,250/day in January to $11,000/day last month.

Asked whether the drop in tanker earnings is going to impact crude oil exports from the GCC, Wistoft said: “There is hardly any correlation between the VLCC earnings and the demand and supply of crude oil globally. What is more important is that there are too many tankers in the market than what is actually needed. Low tanker earnings often lead to a situation where owners operating the older tonnage are forced to offload it by, for instance, scrapping the older tankers. Therefore, we believe the phase-out of the older VLCC ships, especially single-hull tankers, is going to be accelerated if tanker earnings continue to remain depressed.”

Commenting on the factors behind this drastic drop in earnings, Wistoft said: “The main reason is that the number of ships that were kept as floating storage to take speculative advantage of a potential rise in crude oil price has dropped. Whilst last year, there were more than 60 VLCCs kept as floating storage globally, presently they are less than 20. This significant drop in the number of ships on floating storage has now added to the already oversupplied VLCC market, thereby pushing the rates further down.”

 EA Gibson report also adds that a renewal of floating storage appears to be the only immediate hope of pushing the VLCC earnings back to levels seen in the first half of 2010.

It said freight rates have been pummelled by the sharp decline in floating storage and the unstoppable increase in tanker supply. Given this, the number of VLCCs in floating storage would have to exceed even the record levels of 2009 for earnings to get back to those seen in the first half of this year.

As we enter the final quarter for the year, owners will be hopeful of some change in fortune although the odds of any recovery in the near future look somewhat long, the report said.

Follow Emirates 24|7 on Google News.