Oil tankers may plow through the smallest amount of Baltic Sea ice in almost three centuries this year, speeding up deliveries and driving charter rates to the lowest since at least 1997.
This winter will be similar to or milder than 2007-08, when the ice shrank to its smallest since records began in 1720, the Finnish Meteorological Institute says. Aframaxes, hauling about 730,000 barrels of oil, will earn $12,625 a day in 2012, the median of 12 analyst estimates compiled by Bloomberg shows. Investors may profit by selling forward freight agreements, traded by brokers and used to bet on transport costs, which anticipate $19,784 on the Baltic-Northwest Europe route.
The Baltic Sea accounts for 12 percent of global demand for aframaxes, each about 830 feet long, and the vessels reduce speeds to navigate through ice, prolonging journeys and boosting income for owners. Shrinking ice in the region, home to Russia’s biggest oil-export terminal, is worsening a capacity glut that already caused rates to tumble 46 percent last year.
“The ice season is like the Christmas shopping season for aframaxes,” said Sverre Bjorn Svenning, an Oslo-based analyst at Fearnley Consultants A/S, a unit of Norway’s second-largest shipbroker. “If it doesn’t come, results will be poorer than anticipated.”
Aframax rates fell 18 percent to $14,380 this year, according to the London-based Baltic Exchange, which publishes freight costs along more than 50 maritime routes. That compares with an 11-fold advance in costs for the largest oil tankers, which carry about 2 million barrels of crude. The MSCI All-Country World Index of equities gained 5.4 percent as Treasuries lost 0.6 percent, a Bank of America Corp. index shows.
Ice in the Baltic Sea now covers about 29,000 square kilometers (11,200 square miles), an area larger than Maryland, according to Jouni Vainio, a scientist at the institute in Helsinki. That compares with 163,000 square kilometers at this time last year, and the ice typically peaks in early March, he said.
Temperatures in Finland, to the north of the Baltic Sea, averaged minus 2.9 degrees Celsius (27 degrees Fahrenheit) so far this winter, about 5 degrees warmer than the average from 1971 to 2000, according to the country’s Climate Service Center.
About 11 percent of the aframax fleet is equipped to sail through icy waters, according to data from RS Platou Markets AS, an Oslo-based investment bank. Those ships cost as much as $12 million more to build than conventional vessels and burn an extra 4 metric tons of fuel a day because they are heavier and have thicker propellers.
Fuel is the single biggest operating cost for most ships. The price of so-called bunkers rose 32 percent to $696.91 a ton in the past 12 months and reached the highest level since at least October 2008 on Jan. 20, according to data compiled by Bloomberg from 25 ports.
Owners rely on the winter ice to bolster rates and cover the additional costs of building ships capable of navigating through floes. In the past eight years, first-quarter earnings for vessels hauling Baltic Sea cargoes to northwest Europe on average were 24 percent higher than the rest of the year, according to data compiled by Bloomberg.
A colder-than-anticipated winter may drive aframax rates higher. Below-average temperatures are expected in the next two weeks, potentially increasing the amount of ice, said Pauli Jokinen of the Finnish climate center.
Owners may also boost earnings by demolishing, idling or slowing down their ships to cut fuel costs. Aframaxes sailed at an average of 8.2 knots in December and 219 were anchored, compared with 9.3 knots and 174 anchored a year earlier, according to ship-tracking data compiled by Bloomberg.
Demand for the vessels could also strengthen outside the Baltic region. Shipments from Libya, which halted during the uprising that ousted Muammar Qaddafi last year, reached 800,000 barrels a day in December, compared with 555,000 a month earlier, according to the International Energy Agency. Aframaxes accounted for 74 percent of the 54 tankers booked to load Libyan crude since September, data from New York-based shipbroker Poten & Partners show.
The vessels may also find more cargoes in Asia. China, the world’s second-biggest economy after the U.S., will consume 4.2 percent more oil this year, almost four times the anticipated gain globally, according to the IEA, an adviser to 28 industrialized nations. China’s economy will expand 8.5 percent, compared with 2.3 percent in the U.S., the median of as many as 72 economist estimates compiled by Bloomberg show.
The aframax fleet will expand 3.6 percent this year as global oil demand advances 1.2 percent, according to data from London-based Clarkson Plc, the world’s largest shipbroker, and the Paris-based IEA. Outstanding orders at shipyards, led by South Korea and China, are equal to 8.5 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay.
OAO Sovcomflot, based in Moscow, has 52 aframaxes, making it the world’s largest owner of the vessels. The state controlled firm’s ships collected the most cargoes of any owner in the past year from Primorsk, the biggest loading port in the Baltic Sea, ship-tracking data compiled by Bloomberg show.
Sovcomflot’s dollar-denominated bonds due in 2017 yielded a record 290 basis points, or 2.90 percentage points, more than the April 2018 dollar debt of state-controlled OAO Gazprom, the country’s gas export monopoly, on Jan. 10. They yielded 266 basis points more on Jan. 17, data compiled by Bloomberg show.
“The effect of a mild winter in the Baltic on the aframax market could be sizable,” said Thomas Zwick, an analyst at Lorentzen & Stemoco AS, a shipping consultant in Oslo. “It removes owners’ opportunities for periods of super profits and thus has a significant adverse impact on average earnings.”