Tanker Market Fundamentals Improving

Crude tanker spot rates in the second quarter of 2014 averaged approximately 20 to 30 percent higher compared to the same period of 2013, reflecting improving tanker market fundamentals and higher fleet utilization compared to the previous year, according to Tanker Investments Ltd.


Since the beginning of the third quarter of 2014, Aframax and Suezmax spot rates experienced a counter-seasonal rally to the highest levels seen in the month of July since 2008.

A key difference from the past several years is that we have experienced greater volatility in spot tanker rates with average weekly Aframax and Suezmax rates increasing from approximately $11,000 and $14,000 per day, respectively in early-June to over $43,000 and $44,000 per day in mid-July, respectively,” said William Hung, Tanker Investments’ Chief Executive Officer.

” Looking ahead, we expect a further improvement in tanker market fundamentals in the second half of 2014 which benefits Tanker Investments because all of our ships are trading in the spot market and, with current vessel prices still below long-term average values, we intend to continue growing Tanker Investments’ fleet,” Hung added.

As explained by Tanker Investments, the third quarter rate spike was primarily due to refinery throughput increasing as seasonal refinery maintenance concluded, coupled with an increase in long-haul Suezmax movements from the Atlantic to Pacific, fear-driven stockpiling due to uncertainty caused by unrest in Iraq, and vessel delays at U.S. Gulf and Mediterranean ports.

Having increased by approximately 20 percent during the first quarter of the year, secondhand tanker prices were largely unchanged during the second quarter. Asset values for five year old crude tankers remain approximately 30 to 35 percent below the 10-year average.

“Global tanker fleet grew by 2.6 mdwt, or 0.5 pct, in H12014 compared to 10.8 mdwt, or 2.2 pct, in 2013”

A significant portion of this fleet growth occurred in the MR product tanker sector while the world Suezmax and Aframax crude tanker fleets shrank by a net two vessels, or 0.4 percent, and 13 vessels, or 2.1 percent, respectively, during the first six months of 2014.

Taking into account newbuilding orderbook slippage and scrapping, the world tanker fleet is forecasted to grow by approximately 1.2 percent in 2014, the lowest level of tanker fleet growth since 2001, and by approximately 1.6 percent in 2015.

The mid-size tanker fleet is forecasted to further reduce in size during the second half of 2014 and into 2015 as scrapping of older vessels is expected to outweigh new deliveries into the fleet.

In its July 2014 “World Economic Outlook Update,” the International Monetary Fund revised its outlook for global GDP growth in 2014 downward from 3.7 percent to 3.4 percent, with global GDP growth in 2015 unchanged at 4.0 percent.

The downward revision is mainly due to a weaker than expected GDP growth in the United States for the first quarter of 2014 as a result of extreme weather events, softening domestic demand in China, geopolitical instability between Russia and the Ukraine, and a less optimistic growth outlook for several emerging markets.

Global oil demand is projected to grow by 1.2 million barrels per day (mb/d) in 2014 and 1.4 mb/d in 2015 based on the average of forecasts by the International Energy Agency, the Energy Information Administration, and OPEC.

Accelerating global oil demand growth coupled with very low tanker fleet growth, particularly in the crude sectors, is expected to drive an increase in tanker fleet utilization and spot tanker rates during the remainder of 2014 and 2015.

Tanker Market Fundamentals Improving2

Tanker Investments Ltd. reported a net loss of USD 5.7 million, or USD 0.15 per share, for the second quarter of 2014 in its financial results for the quarter ended June 30, 2014.

Total liquidity, including the value of unmortgaged vessels, of approximately USD 172 million including availability under Tanker Investments’ new USD 200 million revolving credit facility which was completed during the quarter.

“The second quarter was an active quarter for expansion and improvement of the Tanker Investments fleet,” commented Hung.

“During the quarter, we took delivery of eight tankers, of which three were delivered during the last two weeks of June. In addition, we completed the MT Jiaolong Spirit drydocking, which included retrofitting the vessel with fuel-saving modifications. The drydocking resulted in fewer average revenue generating days per vessel.”

” Four of our vessels will drydock in the third quarter to coincide with what is typically a seasonally weaker period for spot tanker rates.

Similar to the MT Jiaolong Spirit, these vessels will also receive fuel-saving modifications and will complete their drydock in time to take advantage of what we expect to be a strong winter period in the spot tanker market.”

 

Press Release, August 7, 2014




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