Falling rates trouble waters for supertankers

— Supertanker owners are facing the longest stretch of unprofitable rates in 17 years as the supply of new vessels increases nine times faster than demand for oil.

Shipping companies are making $3,826 a day for a single voyage, 88 percent below the $30,900 Frontline Ltd., the biggest operator, says it needs to break even. Morgan Stanley estimates the tanker fleet will expand almost 13 percent next year, while the International Energy Agency says oil use will grow 1.4 percent.

Supertanker is a loose term for a big oil tanker, but generally the vessels’ lengths are greater than the height of the Chrysler Building in New York, a little over 1,000 feet. The biggest ships can carry more than 100 million gallons of oil.

Ships ordered before daily rates plunged from $177,036 during very high demand in July 2008 are swelling the fleet of about 526 supertankers. Owners have responded by cutting average speeds 9 percent since March and anchoring 24 percent more vessels since January, according to ship-tracking data compiled by Bloomberg.

John Fredriksen, the chairman of Frontline, said last month there “won’t be much money to earn” in shipping in the next two to three years.

“Investing in tankers right now is a bad idea,” said Pablo Mastragostino, a broker at Riverlake Shipping SA in Geneva. “When people say oilconsumption has increased by some tiny amount, I laugh. It corresponds to a minuscule amount of extra ships, and there’s far more coming out of the yards.”

The global oil-tanker fleet will expand by 86.5 milliondeadweight tons in the next two years, equal to about 27 percent of existing capacity, Morgan Stanley estimates. The extra ships, being built by yards including Shanghai Waigaoqiao Shipbuilding Co. and Dalian Shipbuilding Industry Co., would exceedthe previous record of 79.8 million deadweight tons set in 1974 and 1975, according to the research unit of Clarkson Plc, the world’s largest ship broker.w

Forward freight agreements traded by brokers and used to speculate or hedge are trading no higher than $28,285 through 2012, data this month from Imarex ASA show. Single-voyage daily rates slumped 90 percent to $3,826 this year, according to data from the Baltic Exchange.

Six of eight ship brokers and owners surveyed by Bloomberg say unprofitable rates for supertankers will last at least two years.

That would be the longest losing stretch since one that ended in 1995, when the fleet also had too many ship orders, according to Martin Stopford, a director at Clarkson and author of Maritime Economics, now in its third edition.

“At these very low rates, I doubt many owners will continue to run the service of delivering crude,” said Hugo De Stoop, chief financial officer of Euronav NV, an Antwerp, Belgium-based tanker operator. “Normally the winter should trigger an uptick in rates.”

Business, Pages 76 on 10/31/2010

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