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Energy shortages in the world economy are seeing spot market earnings for crude carriers and especially LNG tankers surge as winter looms. By Michael Hollmann[ds_preview]

The energy squeeze and runaway inflation spell major trouble for the container trades as disposable consumer income shrinks. It is no surprise that indicators both for freight rates and vessel hire rates are dark red again in our markets compass bar this month. By contrast, the tanker markets are experiencing quite a rally as energy-starved economies both in Europe and in Asia reach out ever further to secure supplies of crude oil and natural gas.

Worldscale spot rates for crude tankers have been trending considerably firmer in recent weeks, providing shipowners with daily earnings twice or three times the level of year-to-date averages and many multiples of the depressed levels during 2021. Average earnings of 200,000+ dwt VLCC are assessed at more than 85,000 $/day as this issue of HANSA Journal goes to press. This is 11% higher than a month earlier and a record-high for the year. Suezmaxes (160,000d dwt) and Aframaxes (105,000 dwt) with their greater reliance on Atlantic trades even recorded monthly gains of 36 % and 16 % to 64,100 and 58,500 $/day, respectively. The firmer trend seems to be at odds with the global economic gloom as world GDP growth projections continue to be slashed. The IMF cut its growth forecast for 2023 by 0.2 percentage points to +2.7 % while most indicators for Europe suggest that the region is headed for a recession. Slowing economic growth normally results in slower oil demand growth and a corresponding decrease in seaborne flows.

However, this time it’s different. A rebalancing between different fuels due to price disparities and drastic changes in trading patterns for crude oil mean that tankers could escape unscathed by the economic woes. A main factor driving up oil demand even in a recessionary environment is fuel switching from gas to heavy fuel oil in the power sector due to excessive price levels for natural gas, analysts say.

Market braced for OPEC+ curbs

Against this background, the forecasts of the International Energy Agency for +1.9 mill. barrels/day growth in global oil demand this year and +1.7 mill. barrels/day next year look a lot more plausible.

Of course, supply of seaborne volumes to satisfy that growth remains an issue. The recent OPEC+ decision to reduce output by 2 mill. barrels/day from November could be regarded as a major stumbling block in this respect. However, the markets remained relatively unimpressed by the announcement as the cut will be applied to quota target levels and not to actual production which is considerably lower.

OPEC+ members have been pumping much less than planned due to structural problems in Nigeria and Angola while Russia is also lagging pre-war volumes. Thus, expectations are that the effective reduction will only be around 1 mill. barrels/day.

Sentiment in the tanker markets is further boosted by the entry-into-force in early December of the EU import ban on Russian crude which will force Europe to source oil from further afield (Middle East) and Russia to ship further afield (India, China). Clarksons Platou has estimated that ton mile demand in global crude shipping could be lifted by 5 %, that would be more than enough to offset an expected 2.8 % fall in cargo volume due to the OPEC+ cut. Charterers and owners seem to agree with this outlook as illustrated by higher forward rates (Q4) for VLCC and suezmaxes in the FFA market.

Yet, the strength in the crude tanker market pales in comparison with the explosion in spot rates for LNG carriers in recent weeks. Daily earnings for large TFDE (tri-fuel diesel-electric) carriers have surged past an unbelievable 400,000 $/day due to strong seasonal demand both in the Atlantic and the Pacific against very limited supply of spot tonnage. More advanced two-stroke engine vessels with superior efficiency are even fetching close to 500,000 $/day. Another increase in LNG requirements from Europe following the complete halt of supplies via Nord Stream 1 gave the spot market a fresh shot in the arm. Brokers judge the short-term outlook to be very firm.