Teekay to Euronav Win as Iraq Oil to EU Fills Iran Void: Freight
Northbound shipments on Suezmaxes climbed 36 percent to 31 a month last year, the highest tally since at least 2009, as Iraqi output grew, data compiled by Bloomberg show. Rates for the vessels carrying 1 million barrels each will rise 14 percent to $17,000 a day this year, Morgan Stanley estimates. The cargoes benefit owners from Teekay Tankers Ltd. to Euronav NV (EURN), which together control more than 10 percent of the global fleet.
Europe’s embargo stopped shipments dependent on Iran’s own tankers that were too big to navigate the canal and needed to discharge cargo into an adjacent pipeline. Growing imports from Iraq, which doesn’t have its own fleet, are spurring demand for the smaller Suezmaxes at a time when OPEC is making the deepest output cuts since the 2008 global recession. Only three ports in Europe regularly receive the biggest vessels.
“There is a lot of substitution of Iranian oil with Iraqi and that’s good because Iran had its own fleet and Iraq has no ships,” said Odysseas Valatsas, chartering manager of Dynacom Tankers Management Ltd., a closely held Athens-based owner whose fleet includes 25 Suezmaxes. “They are also sending more direct to ports using Suezmaxes than Iran ever did.”
Oil companies favor Suezmaxes because they cost about 33 percent less than the bigger vessels for journeys to Europe. Shipping a barrel of Persian Gulf oil to the Mediterranean on a Suezmax costs $1.27, compared with $1.91 on a very large crude carrier, or VLCC, as the bigger tankers are known, data compiled by Bloomberg show.
Shares of Teekay Tankers (TNK) will rally 25 percent in the next 12 months, the average of five analyst estimates compiled by Bloomberg shows. The Hamilton, Bermuda-based company, a unit of the world’s largest publicly traded owner of Suezmaxes and operator of 25 of the tankers, is down 2.4 percent this year to $2.83 on the New York Stock Exchange.
Euronav, based in Antwerp, Belgium, and the third-largest owner among publicly listed companies with 23 Suezmaxes, is forecast to gain 14 percent in the next year, according to data compiled by Bloomberg. The stock has dropped 3.7 percent in 2013 to 4.42 euros in Brussels trading. Trading was halted until 5 p.m. today as the company offers holders of convertible bonds due in 2015 the chance to extend the maturity by three years.
Euronav’s net loss will narrow to $53.1 million this year, from $85.9 million in 2012, according to the average of six analyst estimates. Teekay Tankers will lose $15.7 million this year, narrowing to $5.4 million in 2014, eight estimates show.
“The biggest increase in the northbound cargoes is Basra from Iraq replacing Iranian crude,” Teekay Tankers’ Chief Excutive Officer Bruce Chan said in a telephone interview from Vancouver on Jan. 30. Suezmaxes are sometimes hauling Iraq’s oil as far as the U.S. Gulf, driving up average distances and so- called ton-mile demand, he said.
Oil output from Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, climbed 16 percent in the past year as the nation rebuilt after more than three decades of wars and sanctions. Iran’s production plunged 18 percent to 2.6 million barrels a day since Europe’s ban began in July, data compiled by Bloomberg show.
Other OPEC members are curbing output in response to slowing European and U.S. demand. The group, supplier of about 40 percent of the world’s oil, has cut supply almost 2 million barrels a day in the five months through January, the biggest reduction since the recession.
Europe’s economy, which accounts for 15 percent of global consumption, will contract 0.2 percent this year, according to the median of 52 economists’ estimates compiled by Bloomberg. The U.S., the world’s biggest oil buyer, imported an average of 8.65 million barrels a day last year, the least since 1999, Energy Department data show.
“The demand side is being messed around with by the U.S. situation,” said Nigel Prentis, the head of consultancy at Hartland Shipping Services Ltd., a London-based shipbroker. “The net effect is it erodes ton-mile demand.”
Suezmax earnings slumped 52 percent in the past year to $10,674 a day, according to London-based Clarkson. Rates are 93 percent below the 2008 record because owners ordered too many ships before the global recession. Suezmaxes will remain unprofitable because the 900-foot vessels need $23,700 a day to break even on average, estimates Pareto Securities AS, an Oslo- based investment bank.
The glut of vessels extends across the industry. The Baltic Dry Index, a measure of the cost of hauling coal and iron ore, plunged 60 percent last year and the Baltic Dirty Tanker Index, reflecting oil-shipping rates, retreated 18 percent. VLCCs are making $12,324 a day, 56 percent less than a year ago, according to Clarkson.
The EU and U.S. are restricting trade with Iran to pressure the country to stop enriching uranium. Europe’s sanctions also halted the insurance for about 95 percent of the global tanker fleet. The government in Tehran says the nuclear development is for civilian use.
Iran used to send cargoes on VLCCs to a pipeline alongside the Suez Canal for smaller ships to pick up on the other end and deliver throughout the Mediterranean. NITC, the Tehran-based tanker company, operates 25 VLCCs and nine Suezmaxes, according to its website.
Europe’s imports from Iran fell 90 percent to 80,000 barrels a day in October from a year earlier, as production tumbled 16 percent to 2.6 million barrels a day, within 10,000 barrels of the lowest since 1990, according to the International Energy Agency. Iran’s exports averaged 1.2 million barrels a day in December to buyers including China, South Korea and India, IEA data show. Its figures for European buying include Turkey.
Iraqi output jumped 9 percent to 3.2 million barrels a day since the embargo started, according to data compiled by Bloomberg. Supply to Europe surged 33 percent to 560,000 barrels a day in October from a year earlier, according to the IEA.
Demand for Middle East-to-Mediterranean shipments, the industry’s largest trade route, will advance 8 percent to 1.3 million barrels a day this year, Clarkson estimates. The route, now accounting for 16 percent of global demand, overtook the West Africa-to-U.S. voyage in 2011 as the largest for Suezmaxes, Clarkson’s figures show.
“This is definitely a welcome boost to a sector that is seeing structural declines to its historical mainstay trade routes,” said Simon Newman, an analyst at ICAP Shipping International Ltd., a London-based shipbroker. “Longer term they’ll need more new trade routes.”
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