After posting heavy losses in the fourth quarter, oil-tanker companies are more optimistic for 2010 as the economic recovery is expected to stimulate oil consumption and boost shipping volumes.
After posting heavy losses in the fourth quarter, oil-tanker companies
are more optimistic for 2010 as the economic recovery is expected to stimulate
oil consumption and boost shipping volumes.
Most publicly traded tanker companies, such as Overseas Shipholding Group (OSG)
and General Maritime Corp. (GMR) lost money in the last three months of 2009 as
tanker voyage earnings crumpled on reduced demand for shipping. Refiners were
faced with massive oil stockpiles amid weak levels of fuel consumption as the
recession dragged on. Tanker market conditions are expected to improve as a
rebound in the economy should spur greater fuel consumption and draw down
bloated fuel inventories. Fleet growth is likely to be crimped by the phase-out
of older, single-hull tankers and an expected delay in the delivery of new
tankers.
"I'm celebrating that 2009 is behind us; last year was one of the most
challenging of my 30-year career," Morten Arntzen, chief executive of
Overseas Shipholding Group, said on a conference call to discuss earnings. The
company posted a loss of $23.2 million in the fourth quarter, with voyage
revenue plunging 41% from a year earlier.
The shipping market is expected to benefit from rising long-haul trade this
year as developing countries, such as
China
and
India
,
increase oil imports from
Latin America
and
West
Africa
.
A reduction in global oil inventories should also give a boost to the tanker
market. Such a drawdown in stocks could lead the Organization of Petroleum
Exporting Countries to ship more oil, Jeffrey Pribor, chief financial officer
of General Maritime Corporation said on a conference call after his company
posted a loss for the fourth quarter. He added that a recovery will also be
dependent on a rebound in
U.S.
oil
demand.
In addition to a recovery in oil demand, last year's record-high flood of new
tankers into the market that drove down rates is expected to abate. Estimates
from tanker companies show the global oil-tanker fleet grew by a record 6.6%
last year, but Norway-based Frontline Ltd. (FRO) sees the fleet of very large
crude carriers, or VLCCs moderating this year.
With the phase-out of single-hull tankers to meet environmental rules and the
likely cancellation and deferral of new ship deliveries, "we could have
negative fleet growth for the year," Jens Martin Jensen, CFO of Frontline
said on a recent conference call. Frontline was one of the few tanker companies
to eke out a gain in the fourth quarter, reporting a $3.9 million profit
compared with a $51.6 million profit a year earlier, boosted by a sudden
year-end rise in spot rates.
Some owners have deferred new ship deliveries due to financing issues in the
wake of the credit crisis while new shipyards have been struggling to meet
delivery dates, as the building of new ships has taken them much longer than
they had anticipated.
Tanker companies, such as Frontline, said consolidation in the tanker sector
was possible as the economy improves.
Frontline is "looking at everything: buying ships or chartering in,
looking for new ideas and deals like everyone else out there," Jensen
said.
Even with a glut of tankers in the market, not many are available for purchase,
though some distressed sales by owners stuck taking delivery of a vessel that's
dropped in value are possible, some executives said.
With a three-year lag between ordering and taking delivery of a VLCC, another
possibility is that some shipyards could be stuck with newly built tankers as
owners, who commissioned the vessels during a tanker-market boom, fail to
secure financing to complete payment for the vessels.
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