BIMCO: Tanker Fleet’s DWT Growth on Course for Six-Year High

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Over the past four months owners have been busy ordering new tankers, keeping the crude oil tanker fleet expansion on course for a six-year-high, measured in DWT, BIMCO said.

However, the fleet growth percentage is down from last years’ 5.9%, to 4.7% for the full year of 2017.

The order book included 14 LR2 and 14 Suezmaxes ordered in June, supplementing the 9 VLCCs ordered in May. In total 32 VLCCs have now been ordered in 2017, up from 12 in the first quarter.

Meanwhile, 23 LR2, equal to 45% of the total added oil product tanker capacity overshadowed the recent years’ favourite: MR, as ‘only’ 38 new ships were delivered during the first seven and a half months.

“The fast-growing fleets come as no surprise. But the continued low levels of demolition in both tanker segments are a roadblock to changes to the current poor earnings environment in the freight market and a possible recovery,” BIMCO said.

The fact that one VLCC was reportedly sold for demolition in April, but was then subsequently sold to a new owner, one month later at a higher price, seems irrational, BIMCO added, as overcapacity is increasing amongst crude oil tankers in general and VLCC’s in particular.

Amongst oil product tankers, just two LR2 left the fleet in 2017, a year that has seen MRs, almost exclusively being demolished.

“BIMCO continues to believe that demolition will pick up during the final five months of 2017, but the actual demolition rate only amounted to a one-third of forecasted full year levels by mid-August. The ongoing poor freight market conditions will drive demolition,” the association further noted.

Assuming 2.5 million DWT of oil product tanker capacity will be demolished; fleet growth will hit 4.1% in 2017. Should demolition fall short of that by 1 million DWT, the fleet will expand by 4.8%.

The fast growing fleet is pushing down tanker earnings, which have already been affected by below normal demand for seaborne transport of oil.

Earnings for VLCCs in the spot market are as low as USD 8,775 per day, a level last seen during the difficult years of 2011-2013. The year-to-date average stands at USD 20,489 per day.

BIMCO estimates that spot trading VLCCs built in 2005 and later are loss making at that level, because of heavy financing costs. For the whole industry, any profits made from older ships do not outweigh the losses of the younger vessels.

As earnings very often follow from one segment to the next, Suezmax and Aframax ships are suffering too.

“Earnings for the oil product tanker sector on average appears to have stopped falling, as they dropped steadily throughout 2016, reaching the present level at the end of the year. BIMCO is forecasting that average earnings in this segment will also be loss-making,” the organization added.

MRs have made no more than USD 10,040 per day, while Handysize rates have dropped to USD 7,658 in 2017 down from USD 8,962 in 2016. LR1s have a year-to-date average of USD 7,873 and LR2 USD 9,235 per day.

“We tend to forget however, that demand is not that bad. Looking beyond the regular draw on stocks, other demand factors remain strong,” BIMCO said.

Global oil demand as forecasted by International Energy Agency (IEA) may pass the 100 million bpd mark for the first time, hitting 100.1 million bpd in Q4- 2018, and for 2017, growth has been revised up to 1.5 million bpd.

In addition, China is still believed to be increasing its strategic petroleum reserves (SPR) and crude oil imports were up by 13.8% year-on-year in the first half of 2017 hitting 8.55 million bdp on average.

 

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