03 April 2012

Too Many Container and Dry Bulk Vessels But What of Oil Tanker Futures?  

Higher Rates May Only be Temporary Respite

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WORLDWIDE- With the news that Drydocks World has filed for bankruptcy protection all eyes turn to the market trying to guess what the future holds. The Baltic Dry Index continues its slow recovery clawing its steady way back to a level it last held in mid January up 152 points in the month to the 2nd April but still way off its most recent high of almost 2,000 in mid December. Many owners have taken the easy option of scrapping carriers to at least keep some cashflow but at least two major owners are renegotiating debt in an attempt to survive. As with the container and dry bulk markets the increase in new build tonnage in oil tankers has flooded the market with excess vessel capacity and, although the rates appear to be holding up, the situation is more complicated than it first appears.

The factors affecting the shares of the big oil carrying companies are subject to the vagaries of consumer psychology. That is the conclusion after studying the way tanker rates have blossomed recently after a comparatively fallow period. There is nothing like the fear of conflict to encourage people to stockpile and it seems it works the same way whether you’re an ill informed British consumer panicking over the possibility of a road tanker drivers strike or a billion pound depot building up reserves against a possible ramping up of hostilities with Iran.

A study by Bloomberg concludes that the ocean tanker fleet rates are topping out as consumer demand is down whilst reserves are running at their highest level for years. There is a slowdown in Chinese production and Europe has no spare cash so it’s up to those who store the vast quantities of oil in places like Rotterdam and particularly China as to whether they believe it is safe to let stocks reduce to a normal level or they continue to replenish in case of conflict.

Only time will tell if after the current higher prices can be maintained, certainly the ship operators will use every weapon in their armoury to maintain or restore profits switching from slow to fast steaming whilst rates are higher and taking on business from outside their normal comfort zones travelling to further flung suppliers away from the Gulf region. Such places may have their own security problems but, despite the increased amount of fuel used and consequent lower profit margins many ship owners will feel more comfortable exploring markets which would become the norm should the Middle East situation deteriorate.

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