Tradewinds: Summertime Sadness

“Today, a leading US tanker broker, Poten & Partners, agreed that optimism in the tanker segment appears to be on the rise but argued that it remains to be seen whether this is warranted or not. “‘While it is likely too soon to assess the longevity of positive support in freight rates, demand growth coupled with seeming supply moderation could be an early indication that the market at least has the potential for rebalance,’ the firm told clients in a weekly market briefing. “Poten pointed out that the International Energy Agency believes demand for oil could top 92.7 million barrels per day (bpd) on average by the end of 2014, which is only slightly higher than the estimate issued at the start of 2013 but could have a surprisingly significant impact. “‘Although this is an increase of only 2%, the ton-mile effect on the tanker market could be felt in multiples,’ it explained before reminding clients that a 100,000 bpd increase in crude production in the Arabian Gulf could support the full-time employment of up to four VLCCs. “‘To that end, an additional 2 million bpd sloshing around the system would have a decidedly more pronounced effect,’ the tanker broker continued, adding: ‘Demand for 2015 is currently expected to increase by an additional 1.4 million bpd over 2014 levels.’ “In closing, Poten said it believes a glut in global fleet capacity still poses a threat to the tanker market. While the firm agrees that an increase in ton-mile demand would offset oversupply to some extent it highlighted the problem that tends to arise when freight rates spike. “‘Improving freight conditions generally incentivize owners to trade their assets later into their lives,’ it said. ‘Twenty years marks the final birthday for most asset types. Today, nearly 13% of the tanker fleet is over 15 years of age with the fleet average age of eight years. These statistics suggest that the market is likely well-supplied for the medium-term, especially if freight rates continue to improve. Additionally, persistent high bunker prices preclude the likelihood of vessels speeding up, but with a higher rate environment, anything is possible. At least for now, the spot market freight rates appear to be reflective of a tighter vessel supply to demand ratio. In general, the crude tanker markets have seen upward movement in spot freight rates since the first week of June.'”