- Freight rates for the world’s biggest tankers shot up in September on a series of geopolitical events.
- Freight rates spiked on September 25 from $18,500 to almost $30,000 a day.
- This rise happened after President Trump put sanctions on tankers run by a unit of Chinese state-owned Cosco Shipping Energy Transportation Co.
According to an article published in the Wall Street Journal, vessel operators are holding back on ordering new ships and forecasts suggest an oil supply glut will persist in early 2020.
Exporters and customers used to high shipping costs
Freight rates for the world’s biggest tankers shot up in September on a series of geopolitical events and are still hovering near the highest levels in a decade even after ticking down in the fall. Tighter capacity in shipping markets and longer sailings as fuel-buying countries look to more far-flung markets for crude will likely keep freight rates high well into 2020, according to the chiefs of two of the world’s biggest tanker companies.
Orders for new ships are running near decade lows, according to data from the world’s biggest yards, suggesting crude shipping will remain a seller’s market into next year.
“We will for sure have a strong first quarter and if the market has legs, it will correct downwards, but it will still be comfortable. I think 2020 will be a good year,” Nikos Tsakos, chief executive of Tsakos Energy Navigation Ltd., said in an interview.
Spike in freight rates
Tsakos Energy is a New-York Stock Exchange-listed tanker operator with 70 ships that move crude and oil products for customers including Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell PLC.
Freight rates spiked on Sept. 25 from $18,500 to almost $30,000 a day shortly after President Trump put sanctions on tankers run by a unit of Chinese state-owned Cosco Shipping Energy Transportation Co. , one of the world’s largest tanker owners and a transporter serving much of China’s oil needs, for allegedly transporting Iranian oil in violation of sanctions.
“Very large crude carriers are now around $78,000 a day and smaller Aframaxes at $80,000, especially in North Europe because of the cold weather. With our break-even at around $20,000, we are on solid ground,” Mr. Tsakos said.
Running ahead of demand
Robert Hvide Macleod, chief executive of Oslo-based Frontline Management A/S, which operates 72 tankers in world-wide services, said demand for crude shipping is now running well ahead of tanker capacity.
“The balance is finally in our favor,” Mr. Macleod said. “Today there are twice as many tankers heading for scrapping than there are on order.”
Sales boom
The International Energy Agency said Thursday it expects global oil inventories to grow in the first quarter of 2020 despite an agreement by the Organization of the Petroleum Exporting Countries and its allies to further trim production.
Tanker operators are benefiting from bigger, fundamental changes in energy markets. The shale boom in the U.S. along with low refining costs have made the U.S. a major crude exporter. American producers shipped out around three million barrels a day in September, 50% more than in the same month a year ago, according to the U.S. Energy Information Administration.
With other oil exporters such as Iran and Venezuela largely sidelined by U.S. sanctions, around 20% more tankers sailed this year to the U.S. Gulf than in 2018, and operators expect more growth, according to Greece-based brokerage Allied Shipbroking.
This means more tankers heading out of the U.S. to big Asian importers, compared with shorter voyages out of the Middle East, and more income for tanker owners because the longer routes command higher prices.
Strict anti-pollution rules
Starting in January, ocean-going vessels are required to emit 85% less sulfur emissions. To meet this requirement, operators have pulled dozens of tankers from service to be retrofitted with new exhaust scrubber systems.
Other impending environmental rules, including one coming in 2030 to reduce carbon emissions, have left ship owners reluctant to buy new vessels until questions over how to meet the targets are resolved.
“We don’t know what kind of fuels will be used,” Mr. Tsakos said. “If you order a ship today it will be delivered in 2022 and with the 2030 deadline approaching, nobody will invest in a ship for just eight years. Capacity will remain tight.”
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Source: TheWallStreetJournal
