Gasoline Tankers Beating Crude for First Time on Record: Freight

Tankers hauling gasoline and diesel are poised to earn more than crude carriers six times their size for the first time on record as the U.S. exports the most refined-oil products in at least two decades.

Rates for Medium Range vessels averaged $15,325 a day this year, while those for very large crude carriers were $6,838, according to Clarkson Plc, the biggest shipbroker. The smaller ships haven’t earned more over a full year since at least 1997. Shares of Scorpio Tankers Inc., the largest publicly traded owner of product vessels, will rise 12 percent in a year as those of Frontline Ltd., which operates supertankers, drop 29 percent, analyst estimates compiled by Bloomberg show.

U.S. oil production rose to the highest level since July 1992 in the week ended July 5, boosted by fracking that unlocks deposits trapped in shale rocks. The nation’s crude imports, the second-largest source of demand for VLCCs after China, will fall the most since at least 1991, according to Clarkson. The U.S. prohibits exports of most of its crude while allowing shipments of refined products.

“This is the first time that the U.S. is able to export energy,” Robert Bugbee, the president of Scorpio said in an interview. “That’s transformational. We’ve been bullish, and yet we’ve been surprised by the rates we’ve got now.”

MR tankers hauling about 37,000 metric tons of refined products are the type most commonly used for U.S. exports. Rates surged 73 percent in the past year to $13,315 a day, data from London-based Clarkson show. Earnings will average $15,000 this year, 15 percent more than in 2012, according to RS Platou Markets AS, an investment bank in Oslo.

2 Million Barrels

Scorpio’s 42 ships, including 17 MRs, need an average of about $13,000 a day to break even, Bugbee said in the July 3 interview. Shares of the Monaco-based company jumped 42 percent to $10.13 this year in New York and will reach $11.39 in 12 months, according to the average of 10 analyst estimates. Scorpio will report net income of $31.7 million for this year, from a loss of $26.5 million in 2012, the mean of five estimates shows.

Rates for VLCCs carrying 2 million barrels of crude, or about 260,000 tons, went negative in February, March and April, implying that owners paid clients to hire their ships. The charterers still pay for some of the fuel, cutting costs for owners moving vessels into regions with better returns. Frontline, based in Hamilton, Bermuda, says it needs daily rates of $25,500 to break even.

Loss Widens

Shares of the company fell 35 percent to 12.10 kroner ($1.99) this year in Oslo and will decline to 8.54 kroner in 12 months, according to the average of 14 analyst estimates. Frontline’s net loss will widen to $115.5 million this year from $82.8 million in 2012, the mean of 14 estimates shows.

U.S. seaborne crude imports will decline 11 percent to 5.4 million barrels a day this year, the largest drop since at least 1991, Clarkson estimates. Total imports in February were the lowest since 1996, Energy Department data show.

Exports of refined products averaged 2.9 million barrels a day this year, heading for the highest annual average in Energy Department data that begins in 1993. About 21 percent of cargoes went to South America and 31 percent to Canada and Mexico.

U.S. crude imports may rebound as the world’s biggest economy accelerates. Growth of 2.3 percent this quarter will advance to 3 percent a year from now, according to the median of as many as 86 economist estimates compiled by Bloomberg. The nation is the second-largest source of demand for VLCCs once cargo volumes are multiplied by distances, according to ICAP Shipping International Ltd., a London-based shipbroker.

Crude Imports

China’s crude imports will advance 9 percent to 5.4 million barrels a day this year, matching the U.S. for the first time, Clarkson estimates. Global seaborne trade will expand 1 percent to 38.3 million barrels a day. Trade in refined products will gain 4 percent to a record 20.2 million barrels a day.

Surging product-tanker rates are spurring orders for new ships and the extra capacity may curb the rally, according to Banchero Costa & Co., a Genoa, Italy-based shipbroker. Fleet growth will accelerate to 3 percent in 2013 from 2 percent last year. Outstanding orders at shipyards are equal to 12 percent of existing capacity, from 9.7 percent in November, according to IHS Fairplay, a Redhill, England-based research company.

The VLCC market has orders equal to 5.9 percent of the fleet, compared with 47 percent five years ago. Owners are contending with the biggest surplus since 1985, according to Fearnley Consultants A/S, an Oslo-based research company. The supertanker fleet expanded 30 percent since the start of 2008 as trade in seaborne oil grew by less than 1 percent, Clarkson data show.

Dry Index

Overcapacity extends across most of the industry because shipping companies ordered too many vessels before the global recession. The Baltic Dry Index, a measure of the cost of hauling coal and iron ore, averaged the lowest ever this year. The ClarkSea Index, a gauge of industrywide earnings, is heading for its worst year since at least 1990.

VLCC rates trailed Frontline’s break-even level in 51 of the past 52 weeks, according to data compiled by Bloomberg. MRs need about $11,500 to make a profit, Arctic Securities ASA in Oslo estimates, and earnings exceeded that threshold since October, Clarkson data show.

“We’re getting a double-whammy effect of declining need for crude imports and a surplus of refined products in the U.S.,” said Nigel Prentis, the head of consultancy at Hartland Shipping Services Ltd., a London-based shipbroker. “Product tankers are finally showing signs of coming good.”