Many analysts have expressed their concern on the continuing weakness of tanker rates, especially in the spot market, a sort of paradox given the record oil prices experienced during the last couple of months and the boom experienced in the dry bulk market. TEN's latest result reporting gave us a few explanations and outlook on the tanker rate market, which are rather interesting. According to TEN, the seasonally weak third quarter, when refiners scale back crude demand ahead of the switch-over to heating oil, has ended. Although spot tanker rates have somewhat improved from their low levels (some of the lowest seen in the last five years), fourth quarter rates for both crude and product tankers have not yet reached the levels typically expected for the seasonally strong fourth quarter. There is evidence however that this may change.
TEN's announcement reads: "A high priced oil environment in backwardation favoring stocks drawings than imports, relatively heavy refinery maintenances in both the US and Europe which together with unscheduled refinery outages primarily in the US reduced crude oil throughputs and the influx of new tankers are the primary reasons behind the softness in spot tanker rates. On the other hand, oil majors, state oil companies and commodity traders continue to aggressively time-charter quality tonnage, both crude and product tankers, at levels similar, if not marginally higher, than the 2006 average of one to three-year time-charter rates".
"The strong rate environment in the dry bulk market has resulted in some owners converting tanker slots to dry bulk slots and selling non-double hull tankers for conversion to bulk tonnage. This can have positive connotations for the existing tanker orderbook. Also the upcoming OPEC meeting on November 17-18 in Riyadh, Saudi Arabia could provide additional support to the market. Balancing the oil market for both producers and consumers without jeopardizing sustainable global growth would be in the interest of all market participants".
What proves to be even more encouraging is that this time around global economy growth has been spread among various geographical areas of the world. Not to forget also that energy demand is highly correlated to economic expansion and is expected to continue growing with the global economy. Nevertheless TEN states that "the prospects of the tanker market however, should not be overstated considering the ongoing challenges that affect both the revenue and the cost base of owners and operators. Rises in risk premiums, credit markets tightening due the "sub-prime" events, increases in lubricant and bunker prices as well as insurance premiums following unusual natural catastrophes, increases in personnel expenses and a weakening dollar will be challenges to be confronted by everyone in the industry".
These are the challenges faced by tanker owners today, but TEN remains optimistic that 2007 despite some turbulence, not an unusual occurrence in shipping markets, will prove another good year for the tanker industry as a whole.
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