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Oil Tanker Market In "State Of Panic" As Charter Rates Plunge, Cargoes Rejected

Tyler Durden's picture





 

While everyone knows about the epic oversupply of dry bulk containerships as a result of the pre-bubble surge in charter rates (and subsequent collapse), which sent many shipping companies to an early bankruptcy or outright liquidation and also resulted in very depressed shipping rates for the last several years as the supply overhang continues to be cleared out of the system (coupled with still depressed end-demand for "dry" commodities) , few may be aware that in the past several months the same fate has befallen the oil-tanker industry. As Bloomberg reports, John Fredriksen's oil-tanker behemoth Frontline Ltd., said it’s rejecting some cargoes after a rout in rates for the vessels. "Frontline is offering tankers for charters “selectively” and the market is in a “state of panic” as excess ship supply drives down charter costs, Jens Martin Jensen, chief executive officer of the Hamilton, Bermuda-based company’s management unit, said by phone today."

The reason for the charter rate crunch: plunging rates. "Crude rates remain in the doldrums,” RS Platou Markets AS, an Oslo-based investment bank, said by e-mail today. VLCCs earned $17,000 a day on average in the first quarter, down 32 percent from a year earlier, it said.  Fredriksen split Frontline Ltd. in two in December 2011, forming Frontline 2012 to withstand a slump in returns that put the original company at risk of running out of cash. Frontline Ltd.’s shares fell to the lowest since May 1999 last month and slumped 95 percent since the end of 2007.

It has gotten so bad that VLCCs have been losing $29 a day on the benchmark Saudi Arabia- to-Japan voyage as of March 28, according to the most recent data from the Baltic Exchange in London. Frontline said in February the ships in its fleet need a daily return of $24,200 to break even.

The collapse in charter rates can be seen below:

Naturally, corporate income statements are getting slaughtered as a result of the plunge in revenues...

Earnings for very large crude carriers, the industry’s biggest ships, plunged 75 percent from a year earlier to $11,624 a day, according to figures from Clarkson Plc the world’s largest shipbroker. A surplus of the supertankers seeking charters in the Persian Gulf averaged 21 percent during the first quarter, the largest glut since 2009, according to market surveys by Bloomberg.

... and expenses: adding insult to injury, this year shippers have to deal with not only dropping revenues, but soaring input costs as well, ironically: fuel costs.

The exchange’s earnings assessments don’t account for speed reductions aimed at reducing fuel consumption, the industry’s largest expense. Last year’s average price of $658.54 a metric ton was more than double the 2008 level, figures compiled by Bloomberg from 25 global ports show.

Absent some near-term miracle, it is likely that VLCC rates will continue tanking:

There are currently 22 percent more VLCCs seeking Persian Gulf cargoes than there are likely to be shipments over the next 30 days, according to a Bloomberg survey of five shipbrokers and owners today. That was the same as last week.

Yet while Bloomberg is quick to go with the generic explanation and blame it all on the supply side, one can't help but wonder just how much of the drop off in charter rates is a function of what has been a major collapse in global trade in the past 6 months, coupled with a drop off in end demand for energy around the world. Because while one can go with the myth of a US energy self-sufficiency, the same can certainly not be said for Japan, which is naturally the other half of the benchmark Gulf to Japan VLCC rate.

One therefore wonders just how much of a disconnect is there between the Japanese stock market, now reflecting solely the collapse in the Yen, and the underlying economy, especially if the Japan charter rate is indicative of the true state of the Japanese economic engine (or lack thereof):

 


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Tue, 04/02/2013 - 19:09 | Link to Comment disabledvet
disabledvet's picture

"we don't need your phucking oil anymore." KAPICHE! now...let me explain "why the bull market while perhaps on the verge of a correction is still a bull market" so that all you HOMEGAMERS can understand how this bull market thing actually works: http://www.youtube.com/watch?v=ieCSUnVL-_s

Tue, 04/02/2013 - 19:11 | Link to Comment edb5s
edb5s's picture

Spot the divergence! 

Tue, 04/02/2013 - 19:20 | Link to Comment THX 1178
THX 1178's picture

Is it "panic" or PPPPAPAPAAAANANNANNNNNNNIIIIICCCCCCCCC!!!!!!!!!!!!!!!!!!!!!!!! 

Tue, 04/02/2013 - 19:26 | Link to Comment knukles
knukles's picture

Some dickwad from California was on Boomberg or CNBS (whats it matter anymore) and said that the decline in demand for gasoline was because of all the electric cars.

 

Aaaaaargrrgrggrrrrrrragggggggggggghhhhhhhh!

Tue, 04/02/2013 - 19:29 | Link to Comment McMolotov
McMolotov's picture

When people are starving in the streets, it will be attributed to fad diets and skinny supermodels.

Tue, 04/02/2013 - 19:37 | Link to Comment knukles
knukles's picture

Ex-fucking-zackt-ly

And excuse for everything!  Alls well in River City, kiddies, sleep well!

http://www.youtube.com/watch?v=ZpBkc2jK-6w

Tue, 04/02/2013 - 19:52 | Link to Comment newworldorder
newworldorder's picture

Love your posts Knukles.

Tue, 04/02/2013 - 19:51 | Link to Comment kaiserhoff
kaiserhoff's picture

Transitory...,  and not part of core CPI.

Hell's the problem?

Tue, 04/02/2013 - 20:05 | Link to Comment knukles
knukles's picture

Deflation/Inflation/Illegal Shit....

It never ends

 

http://washingtonexaminer.com/store-owner-arrested-for-using-food-stamps...

Tue, 04/02/2013 - 20:22 | Link to Comment McMolotov
McMolotov's picture

Not part of core CPI, but isn't gasoline included when they release consumer spending figures?

So it doesn't count for CPI because they don't want inflation to be up, but it does count for consumer spending because they want to be able to say, "Consumer spending rose last month."

What a racket.

Tue, 04/02/2013 - 20:24 | Link to Comment kaiserhoff
kaiserhoff's picture

You do my sarc too much honor:)

Tue, 04/02/2013 - 20:29 | Link to Comment aint no fortuna...
aint no fortunate son's picture

2nd chart's the latest in a dozen that look like crocs waiting for lunch on the Maru River

Wed, 04/03/2013 - 05:30 | Link to Comment StychoKiller
StychoKiller's picture

Hmm, mystery meat in UK lamb curries, and missing Wildebeests near the Maru...

Tue, 04/02/2013 - 21:22 | Link to Comment Debeachesand Je...
Debeachesand Jerseyshores's picture

"dickwad" was to kind of a word for that asshole.

Tue, 04/02/2013 - 19:15 | Link to Comment Banksters
Banksters's picture

 

2009 Jan. 15 (Bloomberg) -- Morgan Stanley is seeking a supertanker to store crude oil, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from higher prices later in the year, four shipbrokers said.

 

Ah memories

Tue, 04/02/2013 - 21:00 | Link to Comment icanhasbailout
icanhasbailout's picture

Yeah, whatever happened to those - did they cash out or are they still hanging out with full tankers waiting for even higher prices?

Wed, 04/03/2013 - 01:03 | Link to Comment CheapBastard
CheapBastard's picture

"Panic" ... sounds bullish to me.

Tue, 04/02/2013 - 19:41 | Link to Comment candyman
candyman's picture

Was it Shaw last week who said he was loading up on LPG transport vesssels? Guess thats a different market, don't know that one at all.

Tue, 04/02/2013 - 19:10 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Stagflation in a boat.

(And fuel costs eating away the margins of crude tankers is cannibal).

Tue, 04/02/2013 - 19:31 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

One trip in one of those tankers eats the oil that a small town's gasoline use would eat in a year.

Wed, 04/03/2013 - 03:28 | Link to Comment LibertarianX
LibertarianX's picture

'StagFloatation' !!

Tue, 04/02/2013 - 19:14 | Link to Comment dbarrett
dbarrett's picture

I wouldn't draw the conclusion that every factor that moves stocks also moves tanker rates. 

Will QE push tanker rates higher? I doubt it as excess capacity will continue keep a lid on them. It will, however, make building a new one or buying a used one, more expensive. Lets see.....an institution with $500 million in excess cash is trying to see whether they should hold cash or buy a tanker (or any other hard asset). What will they choose? .....Or gold!

Gold

Gold Price Girls

 

Tue, 04/02/2013 - 19:14 | Link to Comment fonzannoon
Tue, 04/02/2013 - 20:54 | Link to Comment ekm
ekm's picture

Fonz, It's been 6 months I've been saying that "printing excessively excessive excess reserves" as Benny says, leads to two options only:

 

1) Hyperinflation if the dollars are ACCEPTED into the real economy

 

2) Collapse of world trade, if the dollars are NOT accepted into the real economy by rejection of the dollar.

 

The 2nd has been happening quite slowly but steadily, which is what I call: SLOW MOTION WORLD WEIMAR.

At this points reserves printed in trillions is simply a MONEY CEMETERY holding money nobody wants to do trade with.

 

I've said it and I will say it again and again and again: Crude oil price will break QE and the reserves, as it broke it in 2008 and it has always broken any attempt at infinite reserve printing.

 

As always, I almost never check DOW futures. Quite simply right now I'm checking crude oil price and it's been like that for 3 years day after day after day.

Tue, 04/02/2013 - 21:21 | Link to Comment fonzannoon
fonzannoon's picture

this is the first I am hearing of this from you.

lol

It's just so amazing that they can find buyers to take that packaged dogshit off their hands again...

Wed, 04/03/2013 - 00:36 | Link to Comment rosiescenario
rosiescenario's picture

....will Citi be able to sell these bundled packages of dogmeat to Iceland, yet again?

 

One would think by now if any sales person from any TBTF bank tries to sell anything, the targeted buyer is going to immediately try and figure out how to get short whatever is being offered.

 

 

Wed, 04/03/2013 - 08:32 | Link to Comment Zwelgje
Zwelgje's picture

Shit is getting real for NYLON.

Tue, 04/02/2013 - 19:21 | Link to Comment NoDebt
NoDebt's picture

Europe down and going downer.  Japan been down so long I don't know when... and going downer.

None of this will affect S&P "hockey stick" earning expectations because they only get 40% of them from overseas.  The other 60% are right here in the USA which is growing so fast we're setting new records almost every quarter.

Remember, it's not the fall that kills you, it's the sudden stop at the end.

 

Tue, 04/02/2013 - 21:07 | Link to Comment Non Passaran
Non Passaran's picture

TFA says they're losing $29 a day. It should say 29K a day.

Europe going down? Fuck, I certainly can't say that by looking at the stock market and price of gold. Yesterday's big euro news of the day was how Spain's unemployment dropped by 5K.

I need some seriously bad macro news as all this isn't doing it for me.

Tue, 04/02/2013 - 23:27 | Link to Comment dunce
dunce's picture

I wonder if hauling a load of crude to Japan and losing 29$ a day may be losing less than the shipper sitting at the dock. I also wonder what the VLCC hauls back or does it sail empty. Is the return trip part of the cost? What are the daily dock fees for a VLCC?

Tue, 04/02/2013 - 19:19 | Link to Comment Pairadimes
Pairadimes's picture

Nope. No central bank-driven capital misallocation going on here. Nothing to see. Move along.

Tue, 04/02/2013 - 19:24 | Link to Comment mt paul
mt paul's picture

4 words...

 

offshore floating bullion depositories 

Tue, 04/02/2013 - 19:58 | Link to Comment TheFourthStooge-ing
TheFourthStooge-ing's picture

4 words...

offshore sinking bullion depositories.

You know how it is: gold and boats don't mix. Just sayin'...

Tue, 04/02/2013 - 21:11 | Link to Comment mt paul
mt paul's picture

4 more words

 

 deep sea

salvage robots

Tue, 04/02/2013 - 19:40 | Link to Comment LMAO
LMAO's picture

Well, that's a double whooopeee for John "tax evader" Fredriksen who turned "Cypriot" after a fallout with the Norwegian government and pays his "taxes" to.....Jersey (when will that Isle will be raided by starving banksters and financial mobsters?)

There's something about all these islands: Iceland, Cyprus, Bermuda, Caymans, Jersey......

They attract monkey business, although it’s few and far between said animals on these islands.

Tue, 04/02/2013 - 19:29 | Link to Comment Being Free
Being Free's picture

All this is still bulish for the US market right?

Tue, 04/02/2013 - 19:31 | Link to Comment chump666
chump666's picture

"... and expenses: adding insult to injury, this year shippers have to deal with not only dropping revenues, but soaring input costs as well, ironically: fuel costs."

The Bernanke and Krugman denial trade in inflation, namley oil inflation. Oil runs everything, all company/business operational costs/overheads come from energy costs. They blow out.  Business shrink or cut staff and inventory

Well done money printers, your best move is yet to come, which is when you get the Asian war going (juicy gas reserves in the south china sea). Truly a work of art in your personified arrogance.

 

Tue, 04/02/2013 - 21:22 | Link to Comment ekm
ekm's picture

Well formulated.

Tue, 04/02/2013 - 19:36 | Link to Comment eddiebe
eddiebe's picture

 If it were'nt for bad news, there would be no news at all.., well I'm taking a bit of license there, but here it goes:

http://www.youtube.com/watch?v=okKLYszEnIg

 

Tue, 04/02/2013 - 20:11 | Link to Comment FoeHammer
FoeHammer's picture

Great tune! Love CREAM's rendition as well

Tue, 04/02/2013 - 20:21 | Link to Comment dogbreath
dogbreath's picture

+nth

Tue, 04/02/2013 - 20:32 | Link to Comment Rusty Shorts
Rusty Shorts's picture

Nice...I usually have this playing in the background when hanging out at ZH..

https://www.youtube.com/watch?v=qZhmQgw5VEI

Tue, 04/02/2013 - 19:35 | Link to Comment jimmyjames
jimmyjames's picture

It all sounds rather deflationary to me-people are being squeezed-necessities are drawing in whatever velocity there was-

Tue, 04/02/2013 - 19:52 | Link to Comment AccreditedEYE
AccreditedEYE's picture

There really isn't enough (if any) sheer panic over how much the Fed has spent and how it, still, refuses to go away. We're gonna need a bigger boat....

Tue, 04/02/2013 - 19:39 | Link to Comment Hohum
Hohum's picture

Excess ship supply; stabilzing rigs; less efficient wells.  oops.

Tue, 04/02/2013 - 19:41 | Link to Comment Yen Cross
Yen Cross's picture

     I guess the 'Baltic Dry Index' does have meaning, eh Tyler? ;-)

Tue, 04/02/2013 - 20:28 | Link to Comment DanDaley
DanDaley's picture

The Harpex isn't exactly a picture of health, either:

 

http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years5&&data...

Tue, 04/02/2013 - 20:05 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

Totally off topic....

Click on the Cuba version of Google news.

Apparently, Cuba is obsessed with Abu Dhabi.

We are a nation of freedom and transparency!

 

Tue, 04/02/2013 - 20:48 | Link to Comment adr
adr's picture

But DEMAND!!!! All those cars sold, $95 OIL BECAUSE OF GLOBAL DEMAND.

That keps being told, but how can there be overwhelming demand if nobody is willing to pay to ship the oil?

CAN I GET A FUCK YOU BERNANKE???

Tue, 04/02/2013 - 20:52 | Link to Comment ekm
ekm's picture

One of the factory workers here where I work, just parked his SUV at home and it's been 1 year already coming to work with a very small car, his wife's car. They do car pooling.

He told me he couldn't afford the gasoline if he used the SUV

Tue, 04/02/2013 - 20:55 | Link to Comment FieldingMellish
FieldingMellish's picture

Pee-ew! Smells like central bank induced disconnect in here.

Tue, 04/02/2013 - 21:00 | Link to Comment Mr. Hudson
Mr. Hudson's picture

This will help speed things up.

Tue, 04/02/2013 - 21:51 | Link to Comment buzzsaw99
buzzsaw99's picture

bonus time again

Tue, 04/02/2013 - 22:03 | Link to Comment essence
essence's picture

Ever been aboard an oil tanker?  Ever peered down into its cavernous tanks when they're empty?
I once had the opportunity. The volume is immense. 

Then multiply that volume times the number of tankers plying the seaways every hour of every day.

I had a tanker officer tell me that between the Persian Gulf and the tip of Java he was never out of sight of another tanker. More than likely he could see several at any time (with the naked eye) Looking abeam he could see them traveling in the other direction over in the separate traffic lane for opposite traffic.  All of them following GPS shortest route (to minimize fuel consumption & maximize profits for owners). An endless ant like trail constantly going back and forth between supply and consumer. and that was just that portion of the world.

This doesn't even take into account the oil that never leaves land and gets transported via pipeline.

Total it up and that's a huge amount of oil being pumped out of the earth. Every day. Non stop.
------------

Food for thought for those who think physical growth is boundless. And if physical growth hits limits, what does that mean for a planet where human population (using U.N.  and other sources) grows at 150,000 per day)? What are the consequences for a debt based money system that invokes compound interest in repaying debts. A system that requires continued & growing money lending  to remain viable.

 

 

Tue, 04/02/2013 - 22:18 | Link to Comment jimmyjames
jimmyjames's picture

Food for thought for those who think physical growth is boundless. And if physical growth hits limits, what does that mean for a planet where human population (using U.N.  and other sources) grows at 150,000 per day)? What are the consequences

*************

Thnx for the on hand picture--

Nuclear is the next step--like it or not-

When the lights go out and the nightly circus shows and I-phones cease to function--Kati-bar the door-

Long term bullish uranium miners-

Wed, 04/03/2013 - 08:48 | Link to Comment Zwelgje
Zwelgje's picture

You consumers don't want to know your limits, do you?

Wed, 04/03/2013 - 00:20 | Link to Comment Westcoastliberal
Westcoastliberal's picture

With just the weight of all that crude being sucked out of one part of the Earth, then deposited at the port, I wonder if we'll ever reach a "tipping point"?  Could be a reason why we're now seeing the Earth expand with all sorts of strange noises that can't be explained.

Tue, 04/02/2013 - 22:13 | Link to Comment Mr. Magoo
Mr. Magoo's picture

I think its about time to break out the guillotines

Wed, 04/03/2013 - 06:22 | Link to Comment Aurora Ex Machina
Aurora Ex Machina's picture

Since we're on a nautical theme, heads up on something I've not seen mentioned much here:

New Delhi: Telecom PSU BSNL said its Internet capacity has dropped by 21 per cent due to multiple fibre cuts in three under-sea cable systems that connect the country with many parts of the world.

"... three major cables which are serving as the International Gateway Connectivity are affected because of the multiple fibre cuts," BSNL said in a statement.

"The Sea-Me-We-4, IMEWE and EIG cable systems are the ones affected. Because of this disruption, BSNL has lost around 21 per cent of its total international Bandwidth," it added.[source 27th March]

 

Now, the question is: is this a different cable to Tata's Suez problems?

That cable went down during the recent F1 and caused a fairly substantial headache as the back-up redundancy simply wasn't up to speed. Tata is the company running the F1 contracts [see here], so look to their infrastructure going through Suez > Europe, as they a) own the infrastructure and b) are the only company with global circumference coverage. Location of the breakage? Reports indicate 18 miles off the Egyptian coast. [See here for useful global reference map].

According to Reuters, Egypt’s coastguards stopped a fishing boat near Alexandria and arrested three divers who were caught cutting through an undersea Internet cable yesterday belonging to Egypt Telecom, which is the county’s monopoly landline provider. No details were given as to who these divers were and what their motive was to perform their criminal activity. [source 28th March]

Top tip: undersea cables usually require pro divers to maintain / install / repair, and the cover story (and nice pictures) of three raffish common criminals is somewhat marred by the fact that they're not just cutting Egyptian local cable. I'm reminded of a comment made on this blog along the lines of "...as long as the Eygptians leave the Suez alone, they'll be fine", which I agreed with. I just wasn't thinking about shipping, which s/he was.

More important than the artificial drama in N. Korea? Major hint: the rather comical pictures released by NK [see here or here for a sample, although someone should probably tell them that their nice yellow LAN cable isn't plugged into their nice new iMac] are more akin to movie props than serious intel. And, of all the things that are known unknowns about the young man, he majored in Computer Games. ((The real question is how many dead it takes for it to look real & to get the transition started with enough saved face all around)).

 

Tl;dr

 

Cables being snipped will cost more $ and trade than the ever silly N.Korean side-show (The General with a Hat-Like-A-Bun is my favourite, he's in all the pictures usually back and to the left).

 

 

Be Seeing You.

Wed, 04/03/2013 - 09:36 | Link to Comment Urban Redneck
Urban Redneck's picture

There's a reason I have a collection of PAPER maps which could paper over every square inch of wall and ceiling I have several times over... (This map wasn't $250 a couple years ago, but of course it's not INFLATION that's to blame..., although in fairness real maps are never cheap)

http://submarine-cable-map-2013.telegeography.com/

Wed, 04/03/2013 - 07:53 | Link to Comment BinAround
BinAround's picture

I wonder which bank will be left owning the tankers?  The ships are very highly levered with bank debt and capital leases.  Germany appears to be a large player in ship finance. 

 

Wed, 04/03/2013 - 08:40 | Link to Comment d edwards
d edwards's picture

It seems I recall that a lot of shippers are Greek owned. That should work out well, no?

Wed, 04/03/2013 - 09:37 | Link to Comment tsouth
tsouth's picture

A variety of banks. the banks don't want to pull the plug so they extend loan covenants in the hope of a market recovery, they sometimes force shipowners to merge so that a profitable shipowner takes on the assets of a less profitable one. Worst case scenario bank takes posession of the ships, and puts them back out into the market on time charters to other existing or new owners at much lower rates, writing off the capital loss. In this way the market resets, slo-owly. Newbuild numbers are down, scrapping is up, slowly, like a capsized ship righting itself, the numbers are coming back into line. maybe 2-3 years away on the well documented over supply side.

Wed, 04/03/2013 - 12:55 | Link to Comment Flakmeister
Flakmeister's picture

Typical, not one single comment noting that Global Net oil exports are down ~5% since 2005.... ~5% *less* oil that needs to be moved...

 

 

Wed, 04/03/2013 - 21:38 | Link to Comment AlphaHunter001
AlphaHunter001's picture

 

 

Japan posted massive increase in imports of energy, especially since the nuclear reactor shutdowns. So obviously this is a supply glut of ships. It's laughable to try and 'invent' such reasoning just to try and push an agenda

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