Stronger freight rates in the tanker market may bring about some positive trends for the first quarter of 2015, if lower oil prices can continue to generate higher demand for product tankers.
The stronger freight market has been attributed to the supply side, in particular the newbuilding side of it, because the crude oil tanker demolition segment has contributed very little.
Respectively, the fleets of the three segments of VLCC, Suezmax and Aframax have grown by 1.1%, -0.5% and -1.7%, building on a development that started in 2013. Demand is outstripping supply for the first time since 2010, bringing about stronger freight rates.
In the product tanker segments, the drop in oil prices may have stimulated demand for LR1s and LR2s right away, with the first and second half of the year being worlds apart. Handysizes and MRs caught up in Q4 on the back of more trading activity in a market where prices suddenly moved as compared to the rather flat and steady oil prices seen during the first six months of the year. The freight rate at end-November was a six-year-high for all product tanker segments.
During September and October, 6 VLCCs, 10 Suezmaxes and no Aframaxes were ordered. This activity brings the total number of VLCCs on order up to 91, up from 61, eighteen months ago.
With 22 VLCCs delivered in 2014, of which six in the past two months.
In the past six years (2008-2013), 48 new VLCCs have been delivered on an annual average. 2014 will see a maximum of 25 delivered. 2015 has just 27 VLCCs scheduled for delivery, 2016 has 49. As explained by BIMCO, a window of opportunity is certainly opening up here for the fundamental balance to improve in 2015, assuming that demand remains decent.
Meanwhile, interest in new product tanker orders has dried up. Only 20 new orders have surfaced since 1 July. The preference of product tanker investors is clear: 16 out of the 20 new orders landed in South Korea. During first half of 2014, 57 new ships were ordered.
2014 was set to be another big delivery year for MRs. With 75 being delivered so far and 15 potentially still to come, 2014 is already topping the full year of 2013 that saw 72 new MRs. Since the start of 2014, the MR fleet has grown by 7.4% year-to-date.
The dire market conditions in the first half of the year have resulted in an elevated level of postponements taking place. Annual supply growth is still strong, though. However, there is a possibility that due to these reasons cancellations and postponements of investment in the oil industry might follow, which in the end may reduce production and add supply side pressure to the low oil price.
With a supply-side that picked up from last year – and is set to go even higher in 2015 – the efforts made by individual owners and operators to alleviate the pressure from oversupply appear to be bearing fruit. Going forward, it is important for product tankers to keep slow steaming around in order not to depress freight rates.
For December/January, BIMCO expects earnings for the VLCCs at US$30,000-55,000 per day, Suezmax crude oil tankers at around US$20,000-45,000 per day and Aframaxes are expected in the region of US$20,000-40,000 per day.
In the product tanker segment, BIMCO expects earnings on the benchmark routes from AG to Japan for LR1s to stay around US$15,000-25,000 per day. LR2 ships are too enjoying the stronger market and BIMCO expects earnings around US$20,000-35,000 per day. Handysize rates are seen strong in the US$18,000-30,000 per day, with MR average rates in the interval of US$12,500-25,000 per day.