The tanker industry has long warned that too few tankers are currently being built. The warning is again haunting markets after Houthi attacks on commercial shipping led to a broad shift in global oil trade.
Only two new supertankers will join the fleet in 2024, the fewest in nearly 40 years and about 90% below the annual average this century. After shipowners increasingly began avoiding the southern Red Sea, the lack of new capacity began to have an impact: rates soared and voyage durations increased.
Freight rates have been in check last year as OPEC+ blocked oil from entering the market. At the same time, the broader energy transition means a decline in fossil fuels, which dims the long-term prospects for the industry. But now more and more ships are avoiding the Red Sea, extending the duration of the trade, which is already longer due to the Russia-Ukraine conflict.
Earlier this month, Alexander Saverys, chief executive of Euronav NV, one of the largest pure-play tanker owners, said on an earnings call: “The impact of diversions can be seen every day in the shipping industry, especially crude oil and product tanker shipping. ." Coupled with the low number of new tanker deliveries and the aging fleet, the outlook for tankers is "very optimistic."
Other commercial ships, especially container ships, began avoiding the Red Sea shortly after the attacks began last November, when oil and fuel tankers were relatively slow to avoid it. But that all changed last month after U.S. and British forces bombed Yemen. Military intervention did not stop the Houthis' actions, but instead caused many of the world's top oil tanker owners to stay away.
"The tanker market is tight, especially crude oil tankers. It will be even tighter in the future," said Enrico Paglia, research manager at shipping services company Banchero Costa.
Available tankers plummet
The tanker shortage comes as the global fleet is becoming less efficient. Many ships sail around southern Africa rather than through the Red Sea and Suez Canal, and a rapidly growing "dark fleet" means many ships are only available to certain customers. Shipping is famous for its booms and busts. Average tanker earnings soared to about $100,000 a day in 2020 when oil traders were forced to store oil on tankers, before OPEC+ production cuts led to a multi-year slump.
However, there are now several bullish forces emerging. Since the Russian-Ukrainian conflict, the global oil flow pattern has been reshuffled, and oil transportation has generally become longer-distance. Goods that once took just days to cross the Baltic Sea to reach Europe now take weeks to reach the rest of the world. Disruptions in the Red Sea further extended sailing times.
Fotios Katsoulas, principal analyst for tanker shipping at S&P Global Commodity Insights, said vessel utilization, a measure of how much the tanker fleet is being used at any one time, has risen 5% since ships began avoiding the Red Sea shipping lanes. . "The situation in the Red Sea is changing market fundamentals, which is good for ship operators. The sentiment is much better now," he said.
Record-low new ship orders added to market enthusiasm. After adding two supertankers this year, only five will be added by 2025, according to Banchero Costa. This compares to 42 deliveries in 2022. While orders have increased recently, they will take years to be delivered and shipyards are currently full of container ships ordered during the coronavirus pandemic, as well as orders for liquefied natural gas carriers.
Still, there are some reasons for caution. OPEC+ continues to cut production to support oil prices, which has weighed on seaborne oil shipments, which are now below levels a year ago. High freight rates will naturally make long-distance transportation cost prohibitive, ultimately reducing the need for tankers. Shipowners can also be opportunistic, sometimes trying to convert shipbuilding orders into more profitable new ships.
But stock analysts are mostly bullish on tanker owners. Frontline, the world's largest listed pure-play tanker owner, received 12 buy recommendations from 16 companies following it. International Seaways Inc., another company in the top 10, has 11 buy recommendations from 11 analysts. Banchero Costa's Paglia said: "Taking into account limited new ship orders, a rapidly aging fleet and the impact of environmental regulations in the industry, the market environment that is favorable to tanker owners will continue to exist for the foreseeable future."
Saverys, CEO of Euronav NV, said: “Low deliveries and an aging global fleet are the perfect recipe for a positive outlook for tankers.”
The latest chart from Goldman Oil Tracker shows oil flows in the Bab el-Mandeb Strait continue to deteriorate, falling by 1.8 million barrels per day since the disruption on December 18, while tanker freight rates have soared.
Article forwarded from: Golden Ten Data
