The Tanker Market

8/2/2019 The Tanker Market

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THE TANKER MARKET

Jun 25, 2008

Nikhil JainDrewry Maritime Services


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Spot charteractivity hasincreased byabout 2%from 2007

The Drift - from Period Market to Spot Markets..

Activity in time charter market, having increased steadily through 2004-07, hasdeclined considerably this year (for the period Jan-May)

At the same time, spot charter activity has increased this year (in particular inthe dirty spot markets), bucking the trend over the past four years

Time charteractivityconsiderablydown (~40%)from 2007

Time Charter Vs Spot Market Activity (Jan-May)

-

2,000

4,000

6,0008,000

10,000

12,000

14,000

16,000

18,000

2004 2005 2006 2007 2008420

430

440

450

460

470

480

490

10-50K 80-120K120-200K 200+KTotal Spot Market Activity

( 0

0 0 D w t ) ( M

i l l i onDw

c t )

Note: Total in the above graph represents total time charter activity


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Changing time charter rate - spot market earnings differentials

In the MR segment, while the differential between the average charter ratesand TCE earnings was negligible during Jan-May 2007, it widened out toaround $6,700pd over the comparable period of 2008 an exception (spotrates affected by rising fleet size and low activity in clean spot markets)

In the Aframax segment, the differential between avg. TCE earnings andcharter rates has widened out to around $15,350pd in Jan-May 2008 from$5,100pd in Jan-May 2007

Aframax

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2004 2005 2006 2007 2008

-

1,000

2,000

3,000

4,000

5,000

6,000

TC Activity Period Rates TCE

Note: All rates/earnings are in US$/day and TC Activity in 000 Dwt

MR

15,000

17,000

19,000

21,000

23,000

25,000

27,000

29,000

2004 2005 2006 2007 2008

-

500

1,000

1,500

2,000



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Changing time charter rate - spot market earnings differentials

Suezmax

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

2004 2005 2006 2007 2008

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Vlcc

35,000

45,000

55,000

65,000

75,000

85,000

95,000

2004 2005 2006 2007 2008

-

1,000

2,000

3,000

4,000

5,000

6,000


In the Suezmax segment, the differential between the average TCE earningsand time charter rates has risen to a positive $15,700pd in Jan-May 2008,compared to ($1,400pd) in 2007

In the Vlcc segment, the differential between avg. TCE earnings and charterrates has crossed over from being ($13,350pd) in Jan-May 2007 to a positive$14,900pd in 2008

Note: All rates/earnings are in US$/day and TC Activity in 000 Dwt


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Tsakos Energy Navigation recently shifted one of its Aframaxes into spot trade from timecharter market citing the company commitment towards balanced employment andearnings with flexibility to benefit from market upturns

Further, Tsakos Energy Navigation recently announced that the company is considering tokeep a series of six Aframax newbuildings (two scheduled for delivery in 2008, three in2009 and the last one in early 2010) open for spot trading

Euronavs CEO Mr. Paddy Rogers said in Marine Money 2008 that companies should takeadvantage of spot market upswings rather than trade tonnage in time charter market

Rising tanker derivatives fuelling owners expectations of record earnings this year. TheTD3 contract for Q3-2008 rose to WS176 (approx. $130,000pd) in the third week of Junefrom WS143 a week ago

Rising volume of paper trade drawing more tonnage into the spot trades. Imarexconducted 1,743 trades of around 25.4m tonnes of crude in May, up around 50% y-o-y

However, we have seen a considerable surge in activity in the time charter market in June with a total of 2.7m dwt fixed in the first three weeks of the month compared to 2.6mdwt fixed in May. Some owners are taking advantage of a firm freight market to fix outtheir tonnage. Charterers, wary of spot market volatility, preferring to fix on time charter

Although we've seen an increase in time charter activity in June, the trend may not lastfor long amid relatively much higher earnings in the spot markets - at least in the nearfuture (till end 2008) as suggested by rising FFA values

Recent developments..


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WHY?

The value of US dollar has declinedsignificantly since the start of the year.Euro to Dollar exchange rates have risenfrom 1.47 in Jan08 to 1.55 in Jun so far

Financial markets across the globehave slid from the peaks of 2007

Opecs spare production capacity hascontracted from 3.99m bpd in May 2007to 2.67m bpd in May 2008

Sluggish non-Opec oil productiongrowth. The IEA has cut 640,000 bpdfrom non-Opec supply estimates for 2008since the start of the year

Insurgency and rebel strikes in Nigeriahave shut-in about 800,000 bpd of output

Geopolitical tensions in the Middle East Irans nuclear stance and insurgency inIraq elevating fears of supply disruption

$140/bbl Oil Why? and To What Extent? Trillion Dollar Questions

TO WHAT EXTENT?

Opec maintains its firm stance onproduction targets, declining to raiseoutput before its next meet in Sep

Further US dollar slump may drive up

commodity prices in the near termGeopolitical tensions in the MiddleEast and insurgency in West Africacontinue to affect supplies

Volatility in oil prices drawing in traders,speculators, oil majors, investmentbankers into futures trade

Saudis pledge to increase output by200,000 bpd may prove insufficient tostall the rise in oil prices

Rising global inflationary pressures due to high oil prices may hurt economicgrowth, limiting growth in oil demand


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WHY?

Growing oil demand in Asia and MiddleEast (despite high prices) compensatingfor the fall in OECD demand

Middle East is itself consuming record

levels of oil Middle East oil consumptiongrew from 4.7m bpd in 2000 to 6.6m bpdin 2007 - a CAGR of 5.0% - outpacingthe growth in demand from Asia Pacific(CAGR of 4.8% through 2000-07)

Opecs firm stance on productiontargets amid low Atlantic basin stocksfuelling speculative fears

Preliminary data from the IEAs fieldsurveys indicate that the global oilproduction will peak at 100m bpd in2030, down by 20m bpd from theestimates five years ago. IEAs repetitivecuts in supply estimates have furtherfuelled speculative concerns

$140/bbl Oil Why? and To What Extent? Trillion Dollar Questions

TO WHAT EXTENT?

Retail price increases in developingcountries may affect demand growthfrom Asia

New oil field start-ups in the latter

half of 2008 may facilitate highersupplies in the oil markets, easing outthe tight balance between oil supply anddemand

Oil prices at the current level are highenough to support development inalternative fuel technologies

High revenues from oil sales may boostinvestments in E&P activities sustaining growth in future oil supply

Market fundamentals point towards anincreasing supply demand balance from 0.59m bpd in 1Q08 to 0.85m bpdin 2Q08


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Implications on the Tanker Markets

Volatility in oil prices results in an increase in tanker FFA trades , as charterers andtraders hedge against rising oil prices

High oil prices have forced governments in developing nations to cut fuel subsidies resulting in higher retail prices (and refining margins). In turn, higher refiningmargins are likely to boost crude runs , resulting in a further increase in crudedemand

Though not experienced yet, high bunker prices may dent owners earnings

High oil prices can affect the growth in future oil demand particularly fromdeveloped and free markets (US and Europe)


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Thank You!

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The Tanker Market