Oil tankers, floating monstrosities that can haul 2 million barrels of crude across the ocean, are slogging through the doldrums.
Oil tankers, floating monstrosities that can haul 2 million barrels of crude across the ocean, are slogging through the doldrums, with spot shipping rates near the break-even line or, in some cases, falling below. Eyes are on the economic horizon for any sign of oil demand, as elevated inventories fall at a slow pace and anticipation grows over a looming wave of new ships that were ordered during boom times.
"Basically, we are waiting to see what happens," Charles Rupinski, a shipping analyst at the Maxim Group in New York, said Thursday. Supertankers have been fetching between $5,000 and $15,000 a day, with operating costs in the middle of the dismal range.
"There are too many ships for not enough oil cargos," he says.
Shipping rates for the top three oil tanker sizes fell 25% in July to a level 73% less than last summer, when the price of oil screamed above $140 a barrel, according to a monthly oil report released this week by the Organization of the Petroleum Exporting Countries. Rates in the Persian Gulf have been hit particularly hard from cuts in production from OPEC, which leans heavily on tanker transport. Asian demand is off, and production shut-ins in Nigeria, Africa's former top supplier of oil, have sapped demand for tankers.
With second-quarter earnings season still under way, tanker companies that rely heavily on the spot market are breaking even at best. Houston investment firm Jefferies & Co. expects industry bellwether Frontline Limited to lose 31 cents a share and continue in similar fashion for the rest of the year. Among its compatriots, Nordic American Tanker Shipping reported a net loss of $137,000, and Overseas Shipholding Group lost $8.8 million, or 33 cents a share.
Coming off a peak year, tanker stocks are feeling the pain. Bermuda-based Frontline traded Thursday around $24, down from $71 last summer.
Natasha Boyden, a shipping analyst in New York at Cantor Fitzgerald, lists only Tsakos Energy Navigation, of Greece, as a "buy" among the tanker companies she covers; she lists Bermuda-based Nordic American as a "sell." "We continue to believe 2009 will be a difficult year for tankers, as worldwide oil demand growth slows and new vessels enter the fleet," Boyden says.
Global tanker capacity is about 429 million dead-weight tons. Another 142 million tons, a third of the current market, are on the books to be added in the next three years. Balancing that out, single-hull oil tankers, which make up roughly 20% of the existing fleet, are supposed to be scrapped by the end of 2010, with some extensions. There are also signs that OPEC isn't complying with quotas as much, which potentially would call for more tankers.
With the spot price for oil lower than futures, a situation known as contango, and tanker day rates low, traders took this year to buy oil, storing it cheaply in tankers and selling it forward at a locked-in profit. Since a high in May, with more than 100 million barrels afloat on vessels, contango has been cut in half, according to OPEC, resulting in added pressure on daily tanker rates.
"It's not as attractive as it had been, but there are still tankers holding oil and other things for other reasons," says Rupinski, the analyst at Maxim. "Some people are just betting on the price of oil going up, in my opinion."
The price of oil has been oddly buoyant, holding above $70 Thursday, despite weak demand. Earlier this week, the U.S. Energy Information Administration lowered its forecast for global oil consumption for 2009 to 83.76 million barrels per day from 83.85 million; it also cut its 2010 forecast by 90,000 bpd to 84.7 million barrels per day.
"There is at least some implied demand increases in the fact that oil prices have run up, but we are certainly not seeing it in actual demand numbers, and we are also not seeing it for the number of tankers that are needed for voyage," says Scott Burk, a shipping analyst at Oppenheimer & Co. in New York.