Monday, 20 January 2014 00:00
Increased crude flows to help tanker market
World economic growth also speeding up
OSLO, (Reuters): Increased demand and higher rates will improve the prospects for oil tanker firms this year as world economic growth accelerates and exports recover from some oil-producing countries, the chief executive of major tanker company Frontline said.
Rates were unexpectedly strong at the end of 2013, mostly due to surging Chinese imports. A recent dip, because of lower demand ahead of the Chinese New Year, is likely to be reversed, CEO Jens Martin Jensen told Reuters in a telephone interview from Singapore.
“There are some positive triggers that may result in higher activity going forward, like Libya and Sudan,” he said, referring to an expected rise in volumes.
“We had a very good end to the year and a good start in 2014, so I think it will stabilise,” Jensen said.
The tanker market has suffered through several lean years recently as a slew of vessels, which were ordered before the global financial crisis, have been launched as demand has fallen along with the global economy. Rates at levels below breakeven have forced some firms to restructure and scrap assets.
Frontline, part of shipping tycoon John Fredriksen’s businesses empire, has repeatedly said that if the market did not improve significantly, it would need to restructure its debts.
In late 2013, however, strong Chinese crude oil demand drove rates for very large crude carriers (VLCCs) from around $ 10,000 dollars per day in September to above $ 50,000 in December, the highest level since 2009, before they eased to about $ 30,000 this week.
“That (fall back to $ 30,000) was caused by a reduction in volumes going to China ahead of the Chinese New Year in late January,” said the 48-year-old Jensen, who has led Frontline since 2008 through one of the industry’s worst crises on record.
“The signs are that it will pick up again in a few weeks’ time,” he added. The market remains supported by demand from China, while shipments could increase from Libya and possibly from South Sudan, he said, if they succeed in resolving civil conflicts.
Frontline’s shares have more than doubled in value since late November. They rose by more than 16% on Thursday on increasing investor confidence that the market’s recovery will be sustained.
Still, Jensen warned that too many old vessels continue in operation.
“We see that there’s a new wave of new-build contracts, which is unfortunate,” he said. “But I don’t think we’ll get as many orders as earlier; there isn’t as much shipyard capacity available. But we still need more scrapping to maintain a reasonable balance in the market.”