Global demand for oil is rising and the price of crude is surging
Global demand for oil is rising and the price of crude is surging but companies in the business of shipping the valuable commodity by sea are suffering as the supply of tankers vastly exceeds the need for ships.
For supertanker shipping companies, its a hangover from the prerecession boom in orders for new vessels, huge ships that take several years to build.
The increase could be as much as 14 per cent for the worldwide fleet, which is predicted to reach 627 by the end of the year, compared with 548 last December.
As the price to move oil plunges, and shipping companies see their profits evaporate, it is unclear whether oil producers or consumers will benefit. Competition among sellers of oil moved by supertanker, such as Saudi Arabia, might slightly shave prices to gain advantage against competitors, helping consumers, or could pocket the shipping savings.
Respite for shipping companies will take time, according to the worlds leading supertanker company, Frontline Ltd., which on Wednesday reported quarterly earnings and an 81-per-cent decline in profit.It is hard to see a strong recovery in the tanker market, Frontline said in its assessment.
The weak tanker market mirrors difficulties in bulk shipping, the movement of commodities such as iron ore, coal and grain. The Baltic Dry Index, which tracks the price to ship bulk commodities, has fallen by two-thirds in the past year to depths not much higher than those during the worst of the financial crisis in late 2008. Bulk shipping is also reeling from an oversupply of ships, most of them commissioned several years ago.
Not all companies in the shipping business are hurting, however. Maersk AS, the largest company in container shipping, projects industry growth of close to 10 per cent this year. Container shippers, which move consumer goods as well as commodities such as lumber, account for about 60 per cent of global seaborne trading.
Thats a swift recovery for containers. As of last December, there were nearly 5,000 container ships in the world and plans to build 600 more. A year earlier, at the end of 2009, global trade was so weak that about 500 container ships 10 per cent of the worlds fleet sat idle.
The building boom in container ships has led Dynamar BV, a Dutch consultancy, to wonder whether the industrys giddiness will lead to the same oversupply as that affecting tankers and bulk vessels. Some [container shippers] already act as if the trees are growing up in the sky again, Dynamar said in a February report.
And while shippers of oil, iron ore and other commodities are suffering, some smaller commodity segments are hot. Stena Bulk AB, a Swedish firm that owns 80 oil tankers, has expanded its offering by buying three ships to move liquefied natural gas, since theres more supply of LNG than ships to move it. Stena Bulk is actually turning away LNG customers, hoping to cash in on predicted record shipping rates this summer.
I have never, in 40 years in tanker markets, had the pleasure of an oil company executive calling me up to say they are interested in chartering a ship, Ulf Ryder, Stena Bulk chief executive officer, told Reuters in an interview on Wednesday.
For oil tankers, 2011 will be a challenging year for spot rates, those ships not chartered on longer-term deals, according to Teekay Corp., which is based in Bermuda and has corporate offices in Vancouver. The company services offshore oil platforms and has LNG ships and a fleet of 15 oil tankers. For its biggest ships Suezmax, which are smaller than supertankers the spot price is down to $18,670 (U.S.) a day, more than 40 per cent lower than $31,940 a year ago.
The price to ship oil on the biggest supertankers, according to Frontline, is mired near the lowest point in a decade, with the spot-market rate at about $29,000 a day in the first quarter. The figure is down by a third from $45,000 a year ago and down two-thirds from roughly $90,000 in 2008.
Teekay, earlier in May, said low prices eventually will be a positive for the longer-term balance of tanker supply and demand.
Rising scrap steel prices might also be a help, combined with low shipping rates, Teekay added. It may lead to an increase in scrapping later in 2011.
Source: The Globe and Mail
