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Tanker owners under pressure on several fronts

Rising demand and stronger oil prices normally spell good news for tanker owners. This time round, there are mixed signals. Inflationary pressures are the latest concern, broker Gibson warns.

Paul Bartlett, Correspondent

August 9, 2021

2 Min Read
Tanker at sunrise on Singapore anchorage
Tanker at anchorage in SingaporePhoto: Marcus Hand

Quoting the IMF’s World Economic Outlook Update in July, the London shipbroker noted that expansionary fiscal policy and accommodative monetary policy have resulted in strong price increases recently, from consumer goods to commodities.

In its latest weekly report, Gibson said that the IMF believes further energy price increases are likely, predicting that oil prices will increase 60% above 2020 levels. So far, Gibson notes, Brent and West Texas Intermediate are up by 40% and 46% respectively in the year to date.

Tanker owners breathed a collective sigh of relief when OPEC+ members finally agreed to notch up crude production by 400,000 barrels per day (bpd) each month from now until the end of the year. Meanwhile, despite the resurgence of Covid-19 outbreaks in various countries – including China and India – most economies are in recovery mode and far ahead of where they were this time last year. Industrial demand is relatively buoyant.  

Strengthening demand and higher oil prices are usually positive for tankers. Yet rates across much of the sector remain stubbornly low. Most VLCCs, amongst others, have been operating in the red for weeks.

Gibson warned that higher oil prices this time raise the risk of “demand destruction” by increasing the attraction of typically higher cost renewables and low carbon fuels at oil’s expense. Whether higher prices are good news or not this time, the shipbroker said, will depend on the extent of price gains and how much extra oil comes to market.

Related:Key first-half VLCC rates plunge to lowest levels this century

However, the company had warnings on two other fronts. One, the cost of raw materials is driving up ship prices, with a VLC now costing at least 11% more than it did at the beginning of the year. Although iron ore prices have eased, the cost of steel plate has not. Demand is high as yards book new contracts at a cracking pace.

Separately, the shipbroker suggested that if inflation looks set to exceed long-term targets, then central banks will be forced to act, potentially leading to tighter interest rates and a higher cost of capital. If, in these circumstances, the market still won’t support higher charter rates, then the medium-term outlook for tankers is poor.  

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About the Author

Paul Bartlett

Correspondent

UK-based Paul Bartlett is a maritime journalist and consultant with over four decades of experience in international shipping, including ship leasing, project finance and financial due diligence procedures.

Paul is a former Editor of Seatrade magazine, which later became Seatrade Maritime Review, and has contributed to a range of Seatrade publications over the years including Seatrade’s Green Guide, a publication investigating early developments in maritime sustainability initiatives, and Middle East Workboats and Offshore Marine, focusing on the vibrant market for such vessels across that region.

In 2002, Paul set up PB Marine Consulting Ltd and has worked on a variety of consultancy projects during the last two decades. He has also contributed regular articles on the maritime sector for a range of shipping publications and online services in Europe, Asia, and the US.

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