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Topsy-turvey tanker market

Topsy-turvey tanker market
VLCCs losing $20,000 a day going west and MR product carriers earning upwards of $20,000 a day on some routes - welcome to the topsy-turvey tanker market!

As London broker EA Gibson put it recently: "How can a five-year-old product carrier valued at around $25m earn ten times more (at the time) than a 5-year-old VLCC valued at $55m?

The answer lies in our old friends supply and demand in an open and transparent market as far as the broker is concerned. Although the rate is slowing the VLCC fleet is still being added to at a time when there has been a sharp drop in Middle East oil production - 600,000 barrels per day cut from Saudi output between October and December with a further cutback in January. That is a loss of 10-12 VLCC cargoes a month estimates Gibson, with an extra six VLCCs delivered in the period. The numbers may not seem big but in a tight market that is all it takes for a big swing in fortunes.

Higher oil prices may tempt Middle East producers to raise output again to stabilise prices, but an uptick in demand is also needed. Otherwise their future is entirely in VLCC owners' hands. They need to constrain supply by refusing to take below-cost rates. Lay-up and major pooling arrangements are other possibilities. Fifty to sixty VLCCs are due to deliver this year and even with slippage, cancellations or conversions, the newcomers will dwarf any conceivable scrapping numbers.

Meanwhile MRs are making hay, particularly in Northwest Europe where earnings were a "stellar" $25,000 a day last week. They need to because this bonanza is unlikely to last. New York maritime services company McQuilling is forecasting earnings on three MR routes this year, Caribs/USAC, Singapore/Japan, and USAC/Cont to average $6,000-8,000 a day.


TAGS: Tankers VLCC