Oil-Tanker Return Estimates Cut at Evercore as U.S. Demand Wanes

Earnings for the world oil-tanker fleet will be as much as 14 percent lower than previously forecast this year as rising U.S. shale-gas production curbs demand to import crude, Evercore Partners said.

Very large crude carriers, each able to hold 2 million barrels, will earn $18,000 daily on average, below the prior estimate of $21,000, the New York-based investment bank said yesterday in a report. Evercore also cut projections for smaller Suezmax and Aframax vessels. Earnings will stay below break-even levels for most tanker owners for a second year, it said.

Seaborne shipments of crude to the U.S. are forecast to drop 3 percent this year, even as world deliveries advance 2.2 percent to 38.1 million barrels a day, according to Clarkson Plc, the biggest shipbroker. Reduced buying of oil by the world’s biggest importer is curbing demand for tankers as the fleet expands, Evercore said. Earnings are likely to rebound in 2014, a year later than expected previously, the report showed.

“The shale revolution is helping to lessen the U.S.’s dependence on foreign oil imports, which is very important to the tanker industry,” the bank said. “The U.S. remains the largest consumer of oil, despite recent slowing demand growth and China’s rapid consumption expansion.”

Earnings will average $16,000 a day this year for Suezmax tankers that haul 1 million-barrel cargoes, down from the prior estimate of $18,000, the report showed. Aframax vessels, each holding 650,000 barrels, are set to earn $12,000 daily, $1,500 less than previously projected.

Loan Covenants

Tanker owners may need to take “drastic steps” to meet loan terms, including lowering or suspending dividends, issuing new shares and paying banks to comply with loan covenants as asset values fall, Evercore said. Teekay Tankers Ltd. (TNK), which operates Suezmaxes and Aframaxes, in November cut its quarterly dividend to 2 cents a share from 11 cents for the prior period.

Shorter voyages are probably replacing longer tanker routes to the U.S. from West Africa, prolonging an industry downturn for a fifth year, Evercore said. Reduced journey lengths affect so-called ton-mile demand for shipping, gauged by multiplying cargo size and the distance of a voyage.

Still, rates are poised to climb next year as the world economy recovers, increased Chinese imports of West African oil compensate for reduced U.S. demand, and the number of new vessels entering service drops, Evercore said. Fleet growth measured by capacity will be the weakest in more than a decade and crude demand will be the strongest since 2004, it said.

“We project that the supply-and-demand imbalance in the crude-tanker market will stabilize and even begin to reverse, though moderately, in 2014 as newbuild deliveries are scheduled to plummet materially in what could be a year of more meaningful demand recovery,” the bank said. Single-voyage tanker rates will gain as much as 25 percent next year, it said.

The fleet will have to expand by 11.5 million deadweight tons in 2014 to meet projected growth in ton-mile demand, more than the 3 million tons previously expected, Evercore said.

World usage of crude this year is estimated at 90.8 million barrels, the International Energy Agency said today.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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