32.2 C
Accra

Shortage Of Oil Tankers At Hand As Red Sea Attacks Divert Trade

The number of new tankers being delivered has shrunk significantly. While other commercial vessels especially container ships started to avoid the Red Sea soon after the attacks started in November, oil and fuel tankers were slower to steer clear.

Longstanding warnings from the oil tanker industry that too few of the ships are being built are coming back to haunt the market after Houthi attacks on commercial shipping caused widespread diversions in global petroleum trades.

Just two new supertankers are due to join the fleet in 2024, the fewest additions in almost four decades and about 90% below the yearly average this millennium. But after owners increasingly started to avoid the southern Red Sea, the lack of new capacity is starting to bite: rates have seen spikes, and voyage durations are going up.

Rates had been held in check last year as OPEC and its allies kept oil off the market. At the same time, a wider energy transition is meant do away with fossil fuels, dimming the industry’s outlook in the longer term. But increased avoidance of the southern Red Sea is adding to the duration of trades that had already become elongated due to Russia’s war in Ukraine.

“The impact of the diversions can be seen every day in shipping in general and I would say crude oil and product tanker shipping” specifically, Alexander Saverys, chief executive officer of Euronav NV, one of the largest pureplay owners, said on an earnings call earlier this month. Combined with few new deliveries and an aging fleet, the outlook for tankers is “very positive.”

Tanker Availability Is Shrinking

The number of new tankers being delivered has shrunk significantly. While other commercial vessels especially container ships started to avoid the Red Sea soon after the attacks started in November, oil and fuel tankers were slower to steer clear.

That all changed last month, after US and UK forces bombed Yemen in an effort to quell the incidents. However, the military interventions didn’t stop the Houthis and instead have led to many of the world’s top tanker owners staying away.

- Advertisement -

“The situation is tight in the tanker market, in particular for crude oil tankers,” said Enrico Paglia, research manager at Banchero Costa, a shipping services firm. It “will be even tighter in the future.”

The tanker shortage comes as the efficiency of the global fleet is faltering. In addition to many vessels sailing around southern Africa instead of through the Red Sea and Suez Canal, a burgeoning dark fleet means that many ships are only available to certain customers.

Shipping is notoriously boom and bust. In 2020, when oil traders were stashing oil at sea on any vessel they could find, average earnings surged to about $100,000 a day, before ensuing production cuts from the Organization of Petroleum Exporting Countries and allies led to a multi year plunge.

Now though, there are several bullish forces. Oil deliveries have generally become more long-distance since a reshuffling of global oil flows following Russia’s invasion of Ukraine. Shipments to Europe that would previously hop a few days across the Baltic Sea are now taking weeks to get to other parts of the world. The disruption in the Red Sea is adding even more to those sailing times.

Scant Orders

Vessel employment rates a measure of how highly used the tanker fleet is at any one time  have risen by as much as 5% since ships began avoiding the waterway, according to Fotios Katsoulas, lead analyst for tanker shipping at S&P Global Commodity Insights.

“The situation in the Red Sea is changing the fundamentals in the market and it’s acting in favor of the ship operators,” he said. “The sentiment is much better now.”

The historically low order book is adding to the exuberance. Following the two supertankers that are joining the fleet this year, there will be only five in 2025, according to data from Banchero Costa. That compares with 42 ships delivered in 2022.

While there has been a recent uptick in orders, it takes years for them to arrive, with shipyards currently full of container vessels that were ordered during the pandemic, as well as requests for liquefied natural gas carriers.

Still, there are some reasons for caution. OPEC+ is continuing to curtail output in order to support oil prices, creating a drag on the volume of oil at sea, which is below the level it was at a year ago. And high freight rates can naturally correct themselves by making it too expensive for barrels to sail over longer distances, ultimately curtailing tanker demand.

Owners are also opportunistic and will sometimes try to switch construction orders for new vessels that are more profitable.

But equity analysts are mostly bullish about tanker owners. Frontline Plc, the world’s largest listed pureplay tanker owner, has 12 buy recommendations from the 16 companies that cover it. International Seaways Inc., another of the top 10, has 11 buy recommendations from its 11 analysts.

“Considering the limited order book, a quickly aging fleet, the amount of tonnage that is already over-age and the impact of the environmental regulations in the sector, the good market for tanker owners is here to stay for the foreseeable future,” said Banchero Costa’s Paglia.

SourceBloomberg

Want to submit a story or pitch?

You can submit articles for publication through our email ([email protected]).

DON'T MISS

-Advertisement-spot_img

TOP PICKS FOR THE WEEK

Get more news from us

While you are here, please sign up to get more news from us.