Oil Trade Shrinking Most Since Recession Seen as Tanker Curb

World trade in crude oil shrank the most last quarter since the global recession, leading to lower earnings for tankers and stunting the industry’s recovery, according to RS Platou Markets AS.

Global imports slumped 4 percent compared with a year earlier as shipments declined to the U.S. and China, the biggest buyers, the Oslo-based investment bank said in an e-mailed report today. Rates for the largest tankers, known as VLCCs, will average $15,000 a day this year, down from a previous estimate of $20,000, according to the report.

Surging production in the U.S. cut imports by 20 percent, and the cargoes aren’t going to other countries as high prices curb demand, Platou said in the report. Imports to China, the main source of demand growth, slid 2 percent, Platou estimated. Next year will be little changed and the market will start to recover in 2015 as fleet growth slows, according to the report.

“High-cost oil production in the U.S. is surging, squeezing out seaborne imports, which in turn have nowhere else to go because high prices are also contributing to keeping oil demand growth tepid,” Ole-Rikard Hammer, head of research at RS Platou Economic Research, said in the report. “VLCCs have taken the main beating, given their exposure to long-haul trades to both the U.S. and China.”

VLCCs have been earning less than they need to cover operating expenses, which Platou called “very rare.” Daily rates averaged $5,415 this year, according to data from Clarkson Plc, the world’s largest shipbroker. Running costs such as crew and maintenance total $10,780, according to Moore Stephens LLP, an industry consultant.

Biggest Producer

U.S. crude production surged 15 percent in the past year to 7.3 million barrels a day, within 1 percent of a 21-year high, Energy Department data show. The International Energy Agency expects the U.S. to overtake Saudi Arabia as the world’s biggest producer by the end of the decade.

“We have previously argued that the tanker market could live with rising U.S. growth provided world oil demand was sufficiently strong to redistribute the drop in imports to other markets,” Hammer said in the report. “That was the case last year, but not so far this year.”

Fleet growth, while slowing, is still excessive amid weak demand and owners are demolishing too few ships to reduce the glut, the market’s main difficulty in recent years, Hammer said. Tanker capacity is expanding less than 6 percent, down from 8 percent a year ago, Platou estimated. The 1.2 million deadweight tons scrapped in the first quarter was the lowest in two years, according to the report.

Deliveries of new ships will fall below 10 million deadweight tons in 2014, the least since the late 1990s, Platou estimates. Low prices and ample yard capacity may entice more orders and weaken the recovery, according to the report.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE